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Using an Online Intermediary as an Additional Channel for Selling Quality Differentiated Services

54 Pages Posted: 23 Jul 2012 Last revised: 1 Jul 2014

Mohammad Saifur Rahman

Purdue University - Krannert School of Management

Tolga Akcura

Ozyegin University

Zafer D. Ozdemir

Miami University - Farmer School of Business

Date Written: July 23, 2012

Abstract

When deciding whether to utilize an online intermediary in addition to their own distribution channels, quality differentiated service providers face the trade-off between the benefit of extended reach and the threat of increased competition. Using an analytical framework, we analyze when and how service providers may utilize an online intermediary to their advantage in the presence of advance selling (i.e., selling a service at an early date for future consumption). In general, when an online intermediary is used, the competition effect dominates over the reach effect and leads to a falling price over time, which is in line with our empirical observations from the hotel industry. Interestingly, we find that the negative effect of increased competition on profits, due to intermediary usage, can be reversed by committing to self-imposed participation limits (i.e., selling only a predetermined amount of services through the online intermediary). This ensures that the service provider is better off selling through both its own site and the online intermediary, rather than selling exclusively using either channel.

Keywords: online intermediary, internet reach, distribution channels, advance selling, quality differentiation, analytical model

Suggested Citation

Rahman, Mohammad Saifur and Akcura, Tolga and Ozdemir, Zafer D., Using an Online Intermediary as an Additional Channel for Selling Quality Differentiated Services (July 23, 2012). Available at SSRN: https://ssrn.com/abstract=2115956 or http://dx.doi.org/10.2139/ssrn.2115956

Mohammad Saifur Rahman (Contact Author)

Purdue University - Krannert School of Management ( email )

403 W. State St
West Lafayette, IN 47907
United States
765-494-4464 (Phone)

Tolga Akcura

Ozyegin University ( email )

Kusbakisi Cd. No: 2
Altunizade, Uskudar
Istanbul, 34662
Turkey

Zafer D. Ozdemir

Miami University - Farmer School of Business ( email )

Oxford, OH 45056
United States

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