Management Engineering(ME) Seminar Announcement

We would like to invite you to participate in Management Engineering(ME) Seminar.

1. When: April 24th (Thursday), 16:00~17:30

2. Where: SUPEX Management Complex, 1st #101

3. Speaker: Prof. Kihoon Kim (Korea University)

4. Topic: Online Retailer Competition with a Referral Service

5. Research field: Operation Strategy & Management Science

* Lecture will be delivered in Korean.

Abstract We investigate whether two competing online retailers can be better off by adopting a referral service. When they adopt the referral service, a referral-offering online retailer faces a trade-off between generating additional revenues from referral fees and the risk of exposing its loyal consumers to the price of its referred online retailer. The latter can sell its goods to loyal consumers of the former for a referral fee, and needs to determine its own and referred prices. We first show that for a mixed-strategy equilibrium with the referral service to be sustainable, the referred online retailer should be required not to sell its goods for a lower price on its own site. Under this pricing restriction policy, we show that the proportion of strongly loyal consumers of the referral-offering retailer among all its (potential) consumers mainly determines the chances that the referral service will be adopted. Our main result is that when the market shares of both retailers do not differ significantly, the referral service is likely to be adopted unless the degree of loyalty among their loyal consumers is weak and there are few comparison consumers. As the degree of loyalty and the number of comparison consumers increase, the referral service is more likely to be adopted.