A multichannel model of separating equilibrium in the face of the digital divide

We develop a multichannel model of separating equilibrium where a seller markets a durable good to high- and low-type consumers in two different channels-an online Internet storefront and an offline bricks-and-mortar store. We show how the digital divide, where high-type consumers dominate the online channel and low-type consumers dominate the offline channel, artificially segments the marketplace, thereby mitigating the classic cannibalization problem. This allows the seller to more efficiently market its goods to each consumer segment. We show conditions under which low-type consumers are initially served in the offline channel, but subsequently bridging the divide results in their not being served in either channel. We also examine the implications of bridging the digital divide when the seller uses delay by engaging in intertemporal price discrimination.