Essays on Online Marketing Strategies in Imperfect Competition under Demand Uncertainty
Date Issued
2009
Date
2009
Author(s)
Wu, I-Huei
Abstract
This research focuses on online marketing strategies in imperfect competition under demand uncertainty and addresses the issues of the optimal internet common outlet design, the price dealing, and the e-coupon strategies.n Essay 1, we attempt to analyze the optimal design of the internet common outlet by considering the roles of opaque products and the ownership in channel coordination. The existing research generally regards the internet common outlets like priceline.com as the types of encroachment that online retailers employ to hurt service providers such as airlines and hotels. In contrast, this paper applies a different perspective that suggests service providers may benefit by joining an internet common outlet as a shareholder instead of developing their own online channel. We build a game-theoretic model to show the impacts of the internet common outlet and derive the following main results.. The presence of the internet common outlet allows service providers to adopt the optimal pricing strategies that mimic a perfectly colluded cartel’s pricing strategy. The internet common outlet can help service providers to discriminate different consumers much better and to serve more consumers because the products traded on this new channel are opaque. Surprisingly, the internet common outlet may improve service providers’ profits, the whole channel efficiency, and even the total social welfare without reducing the consumer’s welfare.. The mismatching problem becomes more serious with the size of an internet common outlet. Three kinds of consumers, the high-valuation consumers with strong brand preference, the medium-valuation consumers with weak brand preference, and the low-valuation consumers with no brand preference will be served respectively at the physical travel agency, small-sized internet common outlet, and large-sized internet common outlet.. Both of the ownership and the bidding system, “Name-Your-Own-Price,” facilitate service providers to adopt the optimal pricing strategies that mimic a perfectly colluded cartel’s pricing strategy, and make them earn even greater than in the cartel case without the internet common outlet.. The service providers hard to develop a whole new product can create new opaque goods on the internet common outlet to extend their product lines downward. In Essay 2, we try to build a theory of the price dealing with asymmetric information and intend to analyze the effects of information asymmetry on the duopolists’ price dealing strategies, the firms’ profits, and the welfare of consumers. We consider a model where two risk neutral firms (i.e., expected profits maximizers) are faced with three segments of consumers: the switchers who regard the two products as perfect substitutes and two kinds of loyal customers to each firm. Assume that the informed firm realizes the exact populations of the switchers and the loyal customers to each firm, but the other uninformed firm does not. We show that the equilibrium price dealing behavior is dramatically affected by the presence of information asymmetry and derive the following main results.. Information asymmetry may lead to a Pareto-improving equilibrium for the two firms.. In the full information case, the firm with smaller loyal base gains the competitive advantage to attract the switchers. However, the presence of information asymmetry can eliminate this competitive advantage of the informed company which has fewer loyal customers, and therefore decreases its profits. In other words, the information asymmetry moderates the impacts of brand loyal base on the competitive price promotional strategies.. Owing to the information asymmetry, the firm with smaller loyal base may set a higher regular price and promote less frequently than the firm with more loyal customers (i.e., the larger firm).. The information superiority can offset the inferiority of grabbing the switchers to the larger firm. In that case, the information asymmetry reduces the firms’ dealing frequency, and thus makes the switchers worse off.. The Information asymmetry may benefit the uninformed firm and hurt the informed firm’s profits. In Essay 3, we study duopolists’ optimal e-coupon strategies by extending the model in Essay 2. We combine the price discrimination, advertising, and information learning effects of e-coupon and assume that switchers always download the e-coupons but loyal customers do not. The main results are summarized as follows.. In the case where the loyal base is negatively correlated with the size of switchers, both firms will offer e-coupons when offering e-coupons costs nothing.. In the case where the loyal base is positively correlated with the size of switchers, there may exist an equilibrium where only the firm with fewer loyal customers or even neither of firms will offer e-coupons when offering e-coupons costs nothing.. Information learning may reduce the informed firm’s profits when the uninformed rival can commit to adopt an aggressive pricing strategy by refusing to offer e-coupons.. The greater the advertising effect, the higher the expected profits of the firm with fewer loyal customers. However, the magnitude of advertising effect does not affect the expected profits of the firm with more loyal customers.. In the subgame that both firms offer e-coupons, both the price dealing frequency and the expected profits of the firm with fewer loyal customers decreases with the face value of e-coupon. However, the frequency of the price dealing of the firm with more loyal customers increases in the face value of e-coupon. The magnitude of the face value of e-coupon has no impacts on the expected profits of the firm with more loyal customers.. The firm offering e-coupons may promote less frequently than the firm refusing to offer e-coupons.
Subjects
Demand uncertainty
Online marketing strategies
Imperfect competition
Internet common outlet design
Price dealing
E-coupon strategy
Type
thesis
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