Online Manufacturer Referral to Heterogeneous Retailers
Hao Wu, Gangshu Cai, Jian Chen, and Chwen Sheu. 2015. Manufacturer Internet Referral with Heterogeneous Retailers. Production and Operations Management. 24(11), 1768–1782.
53 Pages Posted: 16 Feb 2015 Last revised: 12 Aug 2017
Date Written: February 15, 2015
Abstract
Since the development of the Internet, thousands of manufacturers have been referring consumers visiting their websites to some or all of their retailers. Through a model with one manufacturer and two heterogeneous retailers, we investigate whether it is an equilibrium for the manufacturer to refer consumers exclusively to a retailer or nonexclusively to both retailers. Our analysis indicates that nonexclusive referral is the manufacturer’s equilibrium choice, if the referral segment market size is sufficiently large; otherwise, exclusive referral is the equilibrium choice. In exclusive referral, the manufacturer would refer consumers to the more cost-efficient and smaller retailer. In the presence of infomediary referral, it is less likely for both exclusive and nonexclusive referrals to be an equilibrium, as the infomediary referral segment grows. We also show our qualitative results are robust even if there were price discrimination among consumers, referral position disparity, local consumers, and asymmetric referral market sizes.
Keywords: manufacturer referral; heterogeneous retailers; channel competition; game theory
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