Federal Reserve Bank of Boston – Report on Window Shopping and Showrooming
The United States Senate passed the misnamed Marketplace Fairness Act (MFA), popularly known as the Internet sales tax, by a 69–27 margin. Supporters of the MFA say the bill is about “fairness” because it would equalize the tax treatment between identical products purchased at brick-and-mortar stores and online stores. Online retailers would have to collect sales taxes from the nearly 10,000 sales tax jurisdictions around the country where their customers live. While taxes shouldn’t give an advantage to one type of shopping over another, in this case, the cure is worse than the disease.
The terms “window shopping” and “showrooming” refer to the activity in which potential buyers visit a brick-and-mortar store to examine a product but end up either not buying it or buying the product from an online retailer. This paper analyzes potential buyers who differ in their preference for after-sale service that is not offered by online retailers. For some buyers, making a trip to the brick-and-mortar store is costly; however, going to the store to examine the product has the advantage of mitigating the uncertainty as to whether the product will suit the buyer’s needs. The model shows that the number of buyers engaged in window shopping behavior exceeds the optimal number, both under duopoly and under joint ownership of the online and walk-in store outlets.
PDF Document: http://www.bostonfed.org/economic/wp/wp2013/wp1304.pdf
SOURCE: Federal Reserve Bank of Boston, Heritage.org