In-Store Referrals on the Internet
Journal of Retailing. 87(4), 563-578, 2011
35 Pages Posted: 29 Jul 2012
Date Written: July 28, 2011
Abstract
In the contemporary e-business, a retailer may display the links to the competing retailers directly (direct referral), or display the referral link provided by a third-party advertising agency (third-party referral), and these referrals may be either one-way or two-way. In this paper, we show that the referrals may align the retailers’ incentives and facilitate implicit collusion, and one-way referral may result in a mutually beneficial situation, thereby providing an economic rationale for these seemingly puzzling phenomena. Using third-party referrals may enhance the retailers’ collusion despite the potential disutility and revenue leakage, and referral services may be detrimental for the consumer welfare.
Keywords: retailer referral, third-party referral, channel competition, game theory
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