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Article: Vertical differentiation and a comparison of online advertising models

TitleVertical differentiation and a comparison of online advertising models
Authors
Keywordsad-supported business models
e-commerce
economic analysis
game theory
online advertising
vertical differentation
Issue Date2012
PublisherME Sharpe, Inc. The Journal's web site is located at http://www.mesharpe.com/mall/results1.asp?ACR=MIS
Citation
Journal Of Management Information Systems, 2012, v. 29 n. 1, p. 195-236 How to Cite?
AbstractDesigning business models that take into consideration the role of advertising support is critical to the success of online services. In this paper, we address the challenges of these business model strategies and compare different ad revenue models. We use game theory to model vertical differentiation in both monopoly and duopoly settings, in which online service providers may offer an ad-free service, an ad-supported service, or a combination of these services. Offering both ad-free and ad-supported services is the optimal strategy for a monopolist because ad revenues compensate for the cannibalistic effect of vertical differentiation. In a duopoly equilibrium, exactly one firm offers both services when the ad revenue rate is sufficiently high. Furthermore, we find that a higher ad revenue rate may lead to lower service prices. Consistently across both monopoly and duopoly settings, such price reductions are more severe in the cost-per-thousand-impressions model than in the cost-per-click model. Our findings emphasize the role of advertising revenues in vertical differentiation and offer strategic guidance for monetizing online services. © 2012 M.E. Sharpe, Inc. All rights reserved.
Persistent Identifierhttp://hdl.handle.net/10722/160025
ISSN
2015 Impact Factor: 3.025
2015 SCImago Journal Rankings: 3.036
References

 

DC FieldValueLanguage
dc.contributor.authorLin, Men_HK
dc.contributor.authorKe, Xen_HK
dc.contributor.authorWhinston, Aen_HK
dc.date.accessioned2012-08-16T06:00:58Z-
dc.date.available2012-08-16T06:00:58Z-
dc.date.issued2012en_HK
dc.identifier.citationJournal Of Management Information Systems, 2012, v. 29 n. 1, p. 195-236en_HK
dc.identifier.issn0742-1222en_HK
dc.identifier.urihttp://hdl.handle.net/10722/160025-
dc.description.abstractDesigning business models that take into consideration the role of advertising support is critical to the success of online services. In this paper, we address the challenges of these business model strategies and compare different ad revenue models. We use game theory to model vertical differentiation in both monopoly and duopoly settings, in which online service providers may offer an ad-free service, an ad-supported service, or a combination of these services. Offering both ad-free and ad-supported services is the optimal strategy for a monopolist because ad revenues compensate for the cannibalistic effect of vertical differentiation. In a duopoly equilibrium, exactly one firm offers both services when the ad revenue rate is sufficiently high. Furthermore, we find that a higher ad revenue rate may lead to lower service prices. Consistently across both monopoly and duopoly settings, such price reductions are more severe in the cost-per-thousand-impressions model than in the cost-per-click model. Our findings emphasize the role of advertising revenues in vertical differentiation and offer strategic guidance for monetizing online services. © 2012 M.E. Sharpe, Inc. All rights reserved.en_HK
dc.languageengen_US
dc.publisherME Sharpe, Inc. The Journal's web site is located at http://www.mesharpe.com/mall/results1.asp?ACR=MISen_HK
dc.relation.ispartofJournal of Management Information Systemsen_HK
dc.subjectad-supported business modelsen_HK
dc.subjecte-commerceen_HK
dc.subjecteconomic analysisen_HK
dc.subjectgame theoryen_HK
dc.subjectonline advertisingen_HK
dc.subjectvertical differentationen_HK
dc.titleVertical differentiation and a comparison of online advertising modelsen_HK
dc.typeArticleen_HK
dc.identifier.emailLin, M: linm@hku.hken_HK
dc.identifier.authorityLin, M=rp01075en_HK
dc.description.naturelink_to_subscribed_fulltext-
dc.identifier.doi10.2753/MIS0742-1222290106en_HK
dc.identifier.scopuseid_2-s2.0-84867305539en_HK
dc.identifier.hkuros202964en_US
dc.relation.referenceshttp://www.scopus.com/mlt/select.url?eid=2-s2.0-84867305539&selection=ref&src=s&origin=recordpageen_HK
dc.identifier.volume29en_HK
dc.identifier.issue1en_HK
dc.identifier.spage195en_HK
dc.identifier.epage236en_HK
dc.identifier.eissn1557-928X-
dc.publisher.placeUnited Statesen_HK
dc.identifier.scopusauthoridLin, M=55385535800en_HK
dc.identifier.scopusauthoridKe, X=55385994700en_HK
dc.identifier.scopusauthoridWhinston, A=7005286020en_HK

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