Why does Amazon.com make low or no profits, whereas, its bricks-and-mortar rival Borders makes substantially higher profits? Why is price dispersion high in certain categories and low in others? Why are prices for the same item higher at bricks-and-mortar retailers than they are at pure play...

In this paper, we first develop a game theoretic model of price competition between a pure play e-tailer and a bricks-and-clicks e-tailer. We show that in general, the pure play e-tailer has a lower equilibrium price. We then develop a simultaneous equation model of e-tailer price and traffic...