Online Cashback Pricing: A New Affiliate Strategy for E-Business

Proceedings of the 34th International Conference on Information Systems (ICIS), May 2013

17 Pages Posted: 1 Nov 2014 Last revised: 2 Nov 2016

See all articles by Yi-Chun (Chad) Ho

Yi-Chun (Chad) Ho

George Washington University - School of Business

Yi-Jen (Ian) Ho

Tulane University - A.B. Freeman School of Business

Yong Tan

University of Washington - Michael G. Foster School of Business

Date Written: May 3, 2013

Abstract

This paper examines the impact of the cashback mechanism on online merchants’ affiliate and pricing strategies. Through reimbursing a portion of the transactional amount to consumers in a form of cashback, merchants are able to practice second-degree price discrimination. We develop an analytical framework which explicitly considers the implementation cost associated with the underlying promotional vehicle. We first identify the conditions under which affiliate strategy is profitable. Surprisingly, the promotional “low” price could be actually “high”, relative to the uniform price when cashback is absent. We also propose channel coordination as a remedy to mitigate market inefficiency caused by double marginalization. Finally, we extend our model to a duopoly setting and find that a merchant can benefit from its rival’s move into the cashback market. Under some conditions both merchants have no incentive to move alone but prefer its rival to do so.

Keywords: cash back, online advertising, promotion, price discrimination, duopoly

Suggested Citation

Ho, Yi-Chun (Chad) and Ho, Yi-Jen (Ian) and Tan, Yong, Online Cashback Pricing: A New Affiliate Strategy for E-Business (May 3, 2013). Proceedings of the 34th International Conference on Information Systems (ICIS), May 2013, Available at SSRN: https://ssrn.com/abstract=2516425

Yi-Chun (Chad) Ho (Contact Author)

George Washington University - School of Business ( email )

Washington, DC 20052
United States

HOME PAGE: http://business.gwu.edu/chad-ho

Yi-Jen (Ian) Ho

Tulane University - A.B. Freeman School of Business ( email )

7 McAlister Drive
New Orleans, LA 70118
United States

Yong Tan

University of Washington - Michael G. Foster School of Business ( email )

Box 353226
Seattle, WA 98195-3226
United States

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
894
Abstract Views
2,777
Rank
49,162
PlumX Metrics