Integrating the Mechanism of Three-Part Tariff Pricing to the Provision of Intra-Site Search Engine Advertising Services

International Journal of Production Research, Forthcoming

Posted: 24 Aug 2017

See all articles by Pei Li

Pei Li

Southwestern University of Finance and Economics (SWUFE)

Zhangxi Lin

Texas Tech University

Yang Yu

Rochester Institute of Technology (RIT)

Date Written: August 22, 2017

Abstract

Intra-site search engines (ISEs) dedicated to private electronic markets have become popular with the fast-growing electronic markets. Among several research facets regarding the advertising services of ISEs, we focus on how to optimise the ISE-based advertising market mechanism by improving the pricing model. The widely adopted pricing scheme, Flat Fee (FF), fails to differentiate ISE advertising services among subscribers. Such inefficiency results in the loss of the subscribers and the decline of the provider’s revenue. We design an advanced pricing scheme, three-part tariff pricing with performance relevant adjustments (3PT), implemented by a two-period contract, to match the differentiated ISE service consumption among subscribers. The mathematical analyses of the advertiser’s VaR model and ISE provider’s revenue optimisation model show that the 3PT pricing scheme is superior to the FF pricing scheme as the former can attract more advertisers and retain most of them in the ISE services. The experimental results from the Monte Carlo simulation further support the theoretic derivation.

Keywords: search engine marketing; proprietary search engines; flat fee; pricing model; three-part tariffs

Suggested Citation

Li, Pei and Lin, Zhangxi and Yu, Yang, Integrating the Mechanism of Three-Part Tariff Pricing to the Provision of Intra-Site Search Engine Advertising Services (August 22, 2017). International Journal of Production Research, Forthcoming . Available at SSRN: https://ssrn.com/abstract=3023912

Pei Li

Southwestern University of Finance and Economics (SWUFE) ( email )

55 Guanghuacun St,
Chengdu, Sichuan 610074
China

Zhangxi Lin (Contact Author)

Texas Tech University ( email )

2500 Broadway
Lubbock, TX 79409
United States
(806)8341926 (Phone)
(806)7421926 (Fax)

HOME PAGE: http://zlin.ba.ttu.edu

Yang Yu

Rochester Institute of Technology (RIT) ( email )

Rochester, NY 14623
United States

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