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Please use this identifier to cite or link to this item:
http://hdl.handle.net/2451/14102
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| Title: | Strategic Impact of Internet Referral Services on Channel Profits |
| Authors: | Ghose, Anindya
Mukhopadhyay, Tridas
Rajan, Uday |
| Keywords: | referral services
price dispersion
franchise fees
acquisition costs
infomediary
channel management |
| Issue Date: | Jul-2004 |
| Publisher: | Stern School of Business, New York University |
| Series/Report no.: | CeDER-05-06 |
| Abstract: | Internet Referral Services, hosted either by independent third-party
infomediaries or by manufacturers serve as
âÃÂÃÂlead-generatorsâÃÂÃÂ
in electronic marketplaces, directing consumer traffic to particular
retailers. In a model of price dispersion with mixed strategy
equilibria, we investigate the competitive implications of these
institutions on retailer and manufacturer pricing strategies as well as
their impact on channel structures and distribution of profits. Offline,
retailers face a higher customer acquisition cost. In return, they can
engage in price discrimination. Online, they save on the acquisition
costs, but lose the ability to price discriminate. This critical
tradeoff drives
firmsâÃÂÃÂ
equilibrium strategies. The establishment of a referral service is a
strategic decision by the manufacturer, in response to a third-party
infomediary. It leads to an increase in channel profits and a
reallocation of the increased surplus to the manufacturer, via the
franchise fees. Further, it enables the manufacturer to respond to an
infomediary, by giving itself a wider leeway to set the unit wholesale
fee to the profit maximizing level. We discuss implications of referral
services on channel coordination issues, and whether a two part tariff
can be successfully used to maximize channel profits. Contrary to prior
literature, we find that when retailers can price discriminate among
consumers, the manufacturer may not set the wholesale price to marginal
cost to coordinate the channel. Consistent with anecdotal evidence, our
model predicts that while it is optimal for an infomediary to enroll
only one retailer, it is optimal for a manufacturer to enroll both
retailers. Finally, our results show that under some circumstances, the
manufacturer even benefits from the presence of the competing referral
infomediary and hence, will not want to eliminate it. |
| URI: | http://hdl.handle.net/2451/14102 |
| Appears in Collections: | CeDER Working Papers
IOMS: Information Systems Working Papers
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