e-Retail Platform Competition: Heterogeneity in Shopper Experiences and Tailored Offers
Posted: 6 May 2019
Date Written: April 1, 2019
E-retailing is faced with more stiff competition than ever. With a rising influx of new shoppers into e-marketplaces, e-retailers serve consumers with more diverse needs and heterogeneous levels of e-shopping experiences. Facing the challenges, e-retailers often provide tailor-made information to meet the shoppers' needs and increase their willingness to pay. In this study, we investigate the impacts of shopper heterogeneity in their expertise and e-platform difference in tailoring ability on the profits of e-retailing participants under different contracts. We build a game-theoretic model in which a merchant sells a product via two competing e-retail platforms with different tailoring capabilities. The e-platforms either set retail prices (sell-to contract) or delegate the decision to the merchant (sell-on contract). Shoppers are of two kinds in their e-shopping experiences with the platforms: experienced (H-type) and inexperienced (L-type). We find that both e-platforms can prefer H-type only under the sell-to contract while the seller always prefers L-type. Under the sell-on contract, however, e-platforms' preferences are different from each other and the seller's preference is always aligned with the better tailoring e-platform only. L-type is always more influential to the profits of all participants than H-type. Interestingly, when tailored offers are effective only for H-type, however, the preferences of all participants can switch. This switch is more evident under the sell-on contract where two platforms never show common preferences. Under the sell-to contract, the preference can also switch as the tailoring difference increases. The preference difference between contracts tends to vanish as tailoring difference becomes significant.
Keywords: e-retail platforms, e-shopping experience, e-marketplaces, tailored offers
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