Risk, Information, and Incentives in Online Affiliate Marketing
Benjamin G. Edelman
Harvard University - HBS Negotiations, Organizations and Markets Unit
June 23, 2014
Journal of Marketing Research, Forthcoming
Harvard Business School, Harvard Business School Negotiation, Organizations and Markets Unit, Research Paper Series
We consider alternative methods of supervising staff who have significant discretion and whose efforts are subject to both incomplete information and skewed incentives. Specifically, we examine online affiliate marketing programs in which merchants oversee thousands of affiliates they have never met. Some merchants hire specialist outside advisors to set and enforce policies for affiliates, while other merchants ask their ordinary marketing staff to perform these functions. For clear violations of applicable rules, we find that outside advisors are most effective at excluding the responsible affiliates ― which we interpret as a benefit of specialization. However, in-house staff are more successful at identifying and excluding affiliates whose practices are viewed as “borderline” (albeit still contrary to merchants' interests), foregoing the efficiencies of specialization in favor of the better incentives of a company's staff. We consider implications for marketing of online affiliate programs and for online marketing more generally.
Number of Pages in PDF File: 32Accepted Paper Series
Date posted: November 23, 2013 ; Last revised: August 5, 2014
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