Amazon and the Future of Retail

Abstract

The growth of Amazon and other online retailers questions the survival of brick-and-mortar retail. We show that, in response to the online trend, offline retailers optimally follow a specialization strategy, in particular specialization in narrow niches. This may lead to an offline long tail that is thicker than the online long tail. We discuss this and other relevant comparative statics based on a simple model of consumer demand and retail design. We complement our theoretical analysis with corroborative empirical evidence, both anecdotal and systematic. (join with Tommaso Bondi (Cornell University))