Optimal Control of Selling Channels for an Online Retailer with Cost-Per-Click Payments and Seasonal Products

Production and Operations Management, 2007

37 Pages Posted: 11 Jan 2007

See all articles by Frank Chen

Frank Chen

City University of Hong Kong - Dept of Management Sciences; City Univ. of Hong Kong - Dept of Management Scienes

Jian Chen

Tsinghua University - School of Economics and Management

Yongbo Xiao

School of Economics and Management, Tsinghua University

Abstract

The problem studied in this paper is a predigestion of the decision faced by online retailers (etailers) that advertise on publisher or comparison-shopping websites. An etailer may sell its product not only through its online and bricks-and-mortar stores, but also through the websites of one or more third parties. However, the etailer has to pay a certain amount to such third parties in an action-based payment scheme, such as a cost-per-click (CPC) scheme. Under the CPC scheme, payment is based solely on click-throughs, which means that the etailer pays only when a shopper clicks through to the product page of its website. Only a fraction of such clicks lead to actual sales. The extra cost that is associated with shoppers who first click through to the third-party websites makes them less attractive as customers than those who directly visit the etailer's online store. Moreover, the CPC rate for a prominent placement is normally set by competitive bidding, and thus varies over time. Therefore, the etailer needs to decide dynamically whether or not to list on a third-party website. The structural properties of the optimal policy are discussed, and numerical examples are given to show the revenue impact of dynamic listing control.

Keywords: Online Retailing, Advertising, Revenue Management, E-commerce, Cost-per-Click.

Suggested Citation

Chen, Frank Y. and Chen, Frank Y. and Chen, Jian and Xiao, Yongbo, Optimal Control of Selling Channels for an Online Retailer with Cost-Per-Click Payments and Seasonal Products. Production and Operations Management, 2007, Available at SSRN: https://ssrn.com/abstract=956219

Frank Y. Chen

City University of Hong Kong - Dept of Management Sciences ( email )

Kowloon Tong
Hong Kong

City Univ. of Hong Kong - Dept of Management Scienes ( email )

Kowloon Tong
Hong Kong

Jian Chen

Tsinghua University - School of Economics and Management ( email )

Beijing, 100084
China

Yongbo Xiao (Contact Author)

School of Economics and Management, Tsinghua University ( email )

Beijing, 100084
China

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
190
Abstract Views
1,081
rank
200,211
PlumX Metrics