In-Store Referrals on the Internet

Journal of Retailing. 87(4), 563-578, 2011

35 Pages Posted: 29 Jul 2012

See all articles by Gangshu (George) Cai

Gangshu (George) Cai

Santa Clara University

Ying-Ju Chen

Hong Kong University of Science & Technology (HKUST) - Department of Information Systems, Business Statistics and Operations Management

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

Suggested Citation

Cai, Gangshu (George) and Chen, Ying-Ju, In-Store Referrals on the Internet (July 28, 2011). Journal of Retailing. 87(4), 563-578, 2011, Available at SSRN: https://ssrn.com/abstract=2119314

Gangshu (George) Cai (Contact Author)

Santa Clara University ( email )

500 El Camino Real
Santa Clara, CA CA 95053
United States
4085542785 (Phone)

Ying-Ju Chen

Hong Kong University of Science & Technology (HKUST) - Department of Information Systems, Business Statistics and Operations Management ( email )

Clear Water Bay
Kowloon
Hong Kong

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