Friend or Foe: Search Engine Advertising Strategies When Contracting with an Online Search Infomediary
Posted: 17 Feb 2020
Date Written: February 11, 2020
The widespread growth of e-commerce has resulted in the proliferation of online search infomediaries (OSIs), who provide consumers with information about products and services sold by different firms (Parents), while also referring interested consumers to the Parents' website. Very often, both the Parent and the OSI advertise and compete for a spot on sponsored search results on keywords related to the Parent. This has led to an interesting conundrum where the Parent and the OSI both compete and cooperate at the same time. In this unique context, how equilibrium payment and advertising strategies are affected by factors such as traffic quality, advertising effectiveness, leakage, and the nature of the contract between the two firms, remains an open question. Using a game-theoretic model, we investigate these effects in the strategic interaction between a Parent and its OSI. We show that the novel balance between the competitive and the collaborative nature of the interaction, which itself gets affected by the choice of contract and changes in the environmental factors, alters equilibrium strategies commonly expected in the existing literature. Through this research, we provide several useful and interesting insights, which can serve as guidelines for both Parents and OSIs in efficiently navigating their relationship.
Keywords: game theory, affiliate marketing, infomediary, contracting, advertising, traffic quality
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