Advertising Strategies in Electronic Retailing: A Differential Games Approach.

Author List: Liu, Dengpan; Kumar, Subodha; Mookerjee, Vijay S.;
Information Systems Research, 2012, Volume 23, Issue 3, Page 903-917.
We consider advertising problems under an information technology (IT) capacity constraint encountered by electronic retailers in a duopolistic setting. There is a considerable amount of literature on advertising games between firms, yet introducing an IT capacity constraint fundamentally changes this problem. In the presence of information processing constraints, although advertising may still cause a customer to switch, it may not result in a sale, i.e., the customer may be lost by both firms. This situation could occur when customers have a limited tolerance for processing delays and leave the website of a firm because of slow response. In such situations, attracting more traffic to a firm's site (by increasing advertising expenditure) may not generate enough additional revenue to warrant this expenditure. We use a differential game formulation to obtain closedform solutions for the advertising effort over time in the presence of IT capacity constraints. Based on these solutions, we present several useful managerial insights.
Keywords: advertising; differential game; IT capacity; Nash equilibrium; optimal control theory; reneging
Algorithm:

List of Topics

#195 0.237 pricing services levels level on-demand different demand capacity discrimination mechanism schemes conditions traffic paper resource expected based constraints solution latency
#64 0.160 advertising search online sponsored keywords sales revenue advertisers ads keyword organic advertisements selection click targeting indirect listing promotional match generates
#168 0.097 firms firm financial services firm's size examine new based result level including results industry important account does suggests characterize limited
#48 0.081 dimensions electronic multidimensional game transactions relative contrast channels theory sustained model predict dimension mixture evolutionary results unique traditional likely finite
#31 0.080 problem problems solution solving problem-solving solutions reasoning heuristic theorizing rules solve general generating complex example formulation heuristics effective given finding
#288 0.067 customer customers crm relationship study loyalty marketing management profitability service offer retention it-enabled web-based interactions operations sales strategy channels set
#170 0.064 information processing needs based lead make exchange situation examined ownership analytical improved situations changes informational examine developed receive perceptions facilitates
#5 0.051 consumer consumers model optimal welfare price market pricing equilibrium surplus different higher results strategy quality cost lower competition firm paper