Will the Internet Channel Lead to Disintermediation?

The explosive growth in Internet usage has changed the ways companies do business. One of the most frequently discussed effects of the emergence of the Internet channel has been disintermediation. The purpose of this paper is to investigate whether the growing e-business armed with the Internet channel will lead to disintermediation. This research question is explored within a game theoretic model capturing the fundamental difference between the physical store and the Internet channel. The model also captures the heterogeneity in buyer preference for the Internet channel as well as that for the physical store. The closed form equilibrium solutions of the model reveal a negative incentive of disintermediation. The intuitions and implications are discussed.