In recent years, online retailers (also called e-tailers) have started allowing manufacturers direct access to their customers while charging a fee for providing this access, format commonly referred as agency selling. paper, we use stylized theoretical model answer key question that e-tailers are facing: When should they an selling instead of using the more conventional reselling format? We find is efficient than and leads lower retail prices; however, end up giving control over prices...

While millions of products are sold on its retail platform, Amazon.com itself stocks and sells only a very small fraction them. Most these by third-party sellers who pay Amazon fee for each unit sold. Empirical evidence clearly suggests that tends to sell high-demand leave long-tail independent offer. We investigate how platform owner such as Amazon, facing ex ante demand uncertainty, may strategically learn from sellers' early sales which the “mid-tail” worthwhile direct selling best left...

Companies in a variety of industries (e.g., airlines, hotels, theaters) often use last-minute sales to dispose unsold capacity. Although this may generate incremental revenues the short term, long-term consequences such strategy are not immediately obvious: More discounted tickets lead more consumers anticipating discount and delaying purchase rather than buying at regular (higher) prices, hence potentially reducing for company. To mitigate behavior, many service providers have turned opaque...

In a store-within-a-store arrangement, retailers essentially rent out retail space to manufacturers and give them complete autonomy over decisions, such as pricing in-store service. This intriguing retailing format appears in an increasing number of large department stores worldwide. The authors use theoretical model investigate the economic incentives retailer faces when deciding on this arrangement. retailer's trade-off is between channel efficiency interbrand competition, moderated by...

We study the bidding strategies of vertically differentiated firms that bid for sponsored search advertisement positions a keyword at engine. explicitly model how consumers navigate and click on links based their knowledge beliefs about firm qualities. Our yields several interesting insights; main counterintuitive result we focus is “position paradox.” The paradox superior may lower than an inferior obtain position below it, yet it still obtains more clicks firm. Under pay-per-impression...

The authors study consumers’ click behavior on organic and sponsored links after a keyword search an Internet engine. Using data set of individual-level activity searches from leading engine in Korea, the find that is low heavily concentrated list. However, less popular keywords (i.e., with lower volume) are associated more clicks per larger fraction clicks. This indicates that, compared keywords, consumers who for expend effort their information closer to purchase, which makes them...

Digital advertising markets are growing and attracting increased scrutiny. This article explores four market inefficiencies that remain poorly understood: ad effect measurement, frictions between within channel members, blocking, fraud. Although these topics not unique to digital advertising, each manifests in ways for ads. The authors identify relevant findings the academic literature, recent developments practice, promising future research.

In many industries, product design and manufacturing lead times are sufficiently long that both the quality level of a amount inventory produced must be determined before firm knows what actual demand will be. this paper, we conduct theoretical analysis such setting. We first consider centralized channel characterize optimal decisions by establishing relationships hold between elasticity cost revenue show strategic substitutes. Next, decentralized with wholesale price contract, in which...

We study the drivers of emergence opinion leaders in a networked community where users establish links to others, indicating their “trust” for link receiver's opinion. This leads formation network, with high in-degree individuals being leaders. use dyad-level proportional hazard model time-varying covariates growth this network. To estimate our model, we Weighted Exogenous Sampling Bayesian Inference, methodology that develop fast estimation dyadic models on large network data sets. find...

Traditional advertising, such as TV and print primarily builds awareness of a firm's product among consumers, whereas sponsored search advertising on engine can target consumers closer to making purchase because they reveal their interest by searching for relevant keyword. Increased consumer targetability in induces firm “poach” competing directly the keywords; other words, poaching tries obtain more than its “fair share” sales through free riding market created being poached. Using game...

We study a scenario in which firm designs the compensation contract for salesperson who exerts unobservable effort to increase level of uncertain demand and, jointly, also decides inventory be stocked. use newsvendor-type model actual sales depend on realized but are limited by available, and unfulfilled cannot observed. In this setup, under optimal contract, agent is paid bonus meeting quota. Our key result that it may stock more than first-best level, because enables obtain precise...

Several researchers have proposed models of buyer behavior in noncontractual settings that assume customers are “alive” for some period time and then become permanently inactive. The best-known such model is the Pareto/NBD, which assumes customer attrition (dropout or “death”) can occur at any point calendar time. A recent alternative model, BG/NBD, follows a Bernoulli “coin-flipping” process occurs “transaction time” (i.e., after every purchase occasion). Although modification results much...

This paper studies a marketplace design problem with asymmetric information where the platform jointly considers leveraging revealed in ad auctions and setting sales commissions to maximize joint profit from revenues commissions.

A part of retail media wherein sponsored product listings are interleaved with organic in the search results is a large and growing phenomenon. In this paper, we study impact displaying at top positions for platform. Analyzing data from large-scale field experiment leading online marketplace India, find nuanced that substantially vary across categories. electronics category, receive fewer clicks than they replace. Surprisingly, effect reversed clothing which ads perform better displaced...

In sponsored search advertising, advertisers bid to be displayed in response a keyword search. The operational activities associated with participating an auction, i.e., submitting the and ad copy, customizing bids copies based on various factors (such as geographical region from which query originated, time of day season, characteristics searcher), continuously measuring outcomes, involve considerable effort. We call costs that arise such management costs. To reduce these increase...

The authors study how a consumer optimally allocates attention to favorable and unfavorable product-related information before making the purchase decision, when processing is costly. They find that allocation depends on, among other factors, consumer’s prior belief about whether product matches their needs unit cost. A processes both “confirmatory” “disconfirmatory” belief, but different degrees under conditions. In general, if has an extreme prior, or cost of high such only small amount...

Advertising to a consumer provides potentially useful information the and moves them along purchase journey, tracking consumer's online activities enables an advertiser infer journey state target repeat ads accordingly. However, many consumers dislike being tracked, and, furthermore, advertising may lead ad wearout. The authors develop model with consumers, advertiser, network investigate, under preceding considerations, impact of regulations that endow choice opt in or out tracking. find...

We study the impact of limited inventory on optimal sales-force compensation contracts. adopt a principal-agent framework, characterized by liability and rent sharing with agent. A commonly invoked assumption in management literature is that demand distribution satisfies increasing failure rate (IFR) property. Under this assumption, however, past research has established quota-bonus contract—a widely adopted contract practice—cannot sustain equilibrium. show because censoring presence (i.e.,...

This paper analyzes consumer prepurchase search and its impact on behavior firm pricing return policies.

Uncertainty in both demand and supply as well unobservable firm actions related to are important for determining the right sales force compensation contract.

In the last two decades, organized retailing has transformed landscape in emerging economies, where unorganized traditionally been dominant. this paper, we build a theoretical model of and economies by carefully modeling key characteristics environment, retailers, consumers, product categories. The primary insight that obtain is competitive market comprising only advent injects efficiency into leading to reduction number retailers. This, turn, makes less competitive. Building on basic...

A recent development in online advertising has been the ability of advertisers to have their ads displayed exclusively on (a part of) a web page. We study this phenomenon context both sponsored search and display advertising. Ads are sold through auctions, when exclusivity is allowed, seller accepts two bids from advertisers, where one bid for standard format which multiple displayed, other being shown (therefore they called two-dimensional, or 2D, auctions). identify opposing forces at play...

Firms in several markets attract consumers by offering discounts other unrelated markets. This promotion strategy, which we call “cross-market discounts,” has been successfully adopted the last few years many grocery retailers partnership with gasoline across North America, Europe, and Australia. In this paper, use an analytical model to investigate major forces driving profitability of novel strategy. We consider a generalized scenario purchases source market lead price redeemable target...