Xinxin Li

Group Buying Commitment and Sellers’ Competitive Advantages

This paper examines a model of duopoly firms selling to an exogenously formed buyer group consisting of members with heterogeneous preferences. Two research questions are addressed: (1) when is it optimal for a buyer group to commit to exclusive purchase from a single seller, and (2) how does the presence of group buying and the exclusive purchase commitment associated with it affect firms’ incentives to invest in quality improvement? We find that, even though exclusive purchase commitment benefits buyers when the competing products provide similar quality, it may lower buyer surplus if one product is significantly advantaged and/or the competing products are not highly differentiated horizontally. This result is robust even if the buyer group is formed endogenously. In addition, contingent on the similarity between the competing sellers’ investment costs, the sellers’ incentives to improve quality may be positively or negatively affected by the presence of group buying.

Online keyword based advertising: Impact of ad impressions on own-channel and cross-channel click-through rates

Keyword-based ads are becoming the dominant form of advertising online as they enable customization and tailoring of messages relevant to potential consumers. Two prominent channels within this sphere are the search channel and the content channel. We empirically examine the interaction between these two channels. Our results indicate significant cannibalization across the two channels as well as significant diminishing returns to impressions within each channel. This suggests that under certain conditions both channels may need to be used to optimize returns to advertising both for advertisers and service providers such as Google. Our game theoretic analysis which builds upon our empirical findings reveals that for intermediate budget values it is optimal to use both channels whereas for very low (very high) budget values it is optimal to use only the content (search) channel. Further as budget increases the advertiser should offer more for ads displayed on the search channel to optimally incentivize the service provider.

Price Dispersion and Loss-Leader Pricing: Evidence from the Online Book Industry

In this paper, we develop a theoretical model to analyze the pricing strategies of competing retailers with asymmetric cross-selling capabilities when product demand changes. Our results suggest that retailers with better opportunities for cross-selling have higher incentives to adopt loss-leader pricing on high-demand products than retailers with low cross-selling capabilities. As a result, price dispersion of a product across retailers rises when its demand increases. The predictions of our model are consistent with the empirical evidence from the online book retailing industry. Using product breadth as a proxy for cross-selling capability, we find that retailers with high cross-selling capabilities reduce prices on best sellers more aggressively than retailers with low cross-selling capabilities. As a result, price dispersion increases when a book makes it to the best-seller list, and the increase is mainly driven by the difference in pricing behavior between retailers with different cross-selling capabilities. Our empirical results are robust against a number of alternative explanations.

Competitive Mobile Geo Targeting

We investigate in a competitive setting the consequences of mobile geo targeting, the practice of firms targeting consumers based on their real-time locations. A distinct market feature of mobile geo targeting is that a consumer could travel across different locations for an offer that maximizes his total utility. This mobile-deal seeking opportunity motivates firms to carefully balance prices across locations to avoid intrafirm cannibalization, which in turn mitigates interfirm price competition and prevents firms from going into a prisoner’s dilemma. As a result, a firm’s profit can be higher under mobile geo targeting than under uniform or traditional targeted pricing. We extend our model in three different directions: (a) a fraction of consumers are not aware of mobile offers outside of their permanent locations, (b) mobile offers can be collected when consumers travel for other reasons, and (c) firms use both permanent and real-time locations when setting prices. Our findings have important manageria...

Competitive Mobile Targeting

We investigate in a competitive setting the consequences of mobile targeting, the practice of firms setting prices based on consumers’ real-time locations. A distinct market feature of mobile targeting is that a consumer could travel across different locations for an offer that minimizes his total cost of buying. This cherry picking opportunity imposes constraints on firms to carefully balance prices across locations, which in turn weakens their price competition at each location. As a result, a firm’s profit can be higher under mobile targeting than under uniform pricing or under targeted pricing based on consumers’ permanent location. Extending the main model, we also discuss how the profitability of mobile targeting may change with the fraction of consumers who are mobile accessible to the firms, the distribution of consumers across locations, and the possibility of tracing down a consumer’s base location and restricting him to offers at that location. Our findings have important managerial implications for marketers who are interested in optimizing their mobile targeting strategies.

Revealing or Non-Revealing: The Impact of Review Disclosure Policy on Firm Profitability

Collecting and displaying product reviews written by consumers is a common practice for many retail websites. These websites, however, differ in their choice to reveal aggregate review statistics on the product list displayed while consumers browse or search to make initial product selections. This study proposes an analytical model to examine the conditions in which revealing average star ratings on the product list is more profitable than not revealing this information. Noting that consumers differ in their valuations of products sold on a firm’s website, this study finds that if a firm sets prices to maximize total profits, it suffers less profitability from disclosing average star ratings if two products do not differ significantly in their average value and consumers’ valuation of the low-value product is more heterogeneous. If products sold on the website instead are priced by third-party sellers that seek to maximize each product’s own profit, it is less profitable for the firm to reveal average rating information when the two products do not differ significantly in average value and consumers’ valuation of the high-value product is more heterogeneous. These results suggest guidelines that retail websites can use to evaluate their information revelation policies, based on three important factors: the difference in the average value of different products, relative heterogeneity in consumers’ valuation of different products, and the firm’s ability to coordinate prices across products.