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Please use this identifier to cite or link to this item:
http://hdl.handle.net/2451/27744
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| Title: | The Impact of Internet Referral Services on a Supply Chain |
| Authors: | Ghose, Anindya
Mukhopadhyay, Tridas
Rajan, Uday |
| Keywords: | internet referral services
electronic markets
price dispersion
franchise fees
discovery costs
electronic intermediary
digital supply chain |
| Issue Date: | 6-Nov-2008 |
| Series/Report no.: | CeDER-PP-2007-01 |
| Abstract: | In many industries, Internet referral services, hosted either by
independent third-party infomediaries or by manufacturers, serve as
digitally enabled lead generators in electronic markets, directing
consumer traffic to downstream retailers in a distribution network. This
reshapes the extended enterprise from the traditional network of
upstream manufacturers and downstream retailers to include midstream
third-party and manufacturerowned referral services in the supply chain.
We model competition between retailers in a supply chain with such
digitally enabled institutions and consider their impact on the optimal
contracts among the manufacturer, referral intermediary, and the
retailers. Offline, retailers face a higher customer discovery cost. In
return, they can engage in price discrimination based on consumer
valuations. Online, they save on the discovery costs but lose the
ability to identify consumer valuations. This critical trade-off drives
firms’ equilibrium strategies. We derive the optimal contracts for
different entities in the supply chain and highlight how these contracts
change with the entry of independent and manufacturer-owned referral
services. The establishment of a referral service is a strategic
decision by the manufacturer. It leads to diversion of supply chain
profit from a third-party infomediary to the manufacturer. Further, it
enables the manufacturer to respond to an infomediary, by giving itself
greater flexibility in setting the unit wholesale fee to the
profit-maximizing level. Both third-party and manufacturer-sponsored
referral services play a critical role in enabling retailers to
discriminate across consumers’ different valuations. Retailers use
online referral services to screen out low-valuation consumers and sell
only to high-valuation consumers in the online channel. Our model thus
endogenously derives a correlation between consumer valuation and online
purchase behavior. Finally, we show that under some circumstances, it is
too costly for the manufacturer to eliminate the referral infomediary |
| URI: | http://hdl.handle.net/2451/27744 |
| Appears in Collections: | CeDER Published Papers
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