Complementarity between online and offline channels for quality signaling

In contrast to offline consumers, online consumers cannot physically inspect a product before purchase, and thus may remain uncertain about the product quality. We show that building a physical shop can generate an informed offline consumer base, which may allow the firm to reveal its product quality to online buyers through optimal pricing. Our results imply that, to resolve consumers’ uncertainty regarding product quality, a firm does not need to completely cover the market by building numerous physical stores; a small number of physical shops may be sufficient to address such pre-purchase uncertainty.