Topic: Discussion on how to apply game theory in research across areas

Date & Time: 13:30-15:30pm, Nov.22, 2018

Venue: Room 2101, Tongji Building A

Language: English

Speaker Biography

Dr. QIU Ye，Assistant Professor, Advanced Institute of Business, Tongji University

EDUCATION

Ph.D., Management Science (Marketing Concentration), The University of Texas at Dallas

RESEARCH INTERESTS

Substantive: Digital Marketing with emphasis on: Measuring response to Online Advertising, Analyzing Online Pricing strategies, Platform Design and Consumer Search

Methodology: Game Theory, Econometrics, Modeling Dynamics

ABSTRACT

In this session, I will use examples to demonstrate how to apply game theory in marketing related researches. Particularly, I will use my own papers to illustrate the identification of a research question and the modelling procedures behind each work. We will explore together potential researches that can be done in various areas by using game theory. Here lists the abstracts of my own two papers.

Paper I: Merchant and Platform: Pricing Strategy and Product Entry

For a selling platform managing merchants poses challenges. We analyze competitive pricing strategies depending on the platform’s choice to include in its assortment a product the merchant sells. The platform wants the merchant to remain, and if the platform chooses to carry the product, the merchant prefers a non-zero commission rate based on sales to a flat fee, reducing price competition. We then ask whether through its assortment the platform can signal the quality of a product if consumers’ information is incomplete. Signaling is possible because of the potential goodwill loss to the platform from disappointed consumers. We characterize the separating equilibrium with the platform carrying a product only if quality is high. More interestingly, conditions exist such that signaling benefits not only the platform and consumers but also the merchant, making it a win-win proposition. Casual empirical evidence shows substantial sales increase after Amazon decides to offer a product, while such increases don’t occur for products Amazon doesn’t carry. Moreover, even after Amazon’s entry, third party merchants continue to sell on Amazon whose prices are higher than the merchants’. We conclude that a platform could strategically use its assortment decision to realize higher sales and thereby also help merchants.

Paper II: Increasing Retailer Loyalty Through Use of Cash Back Rebate Sites

Cash back sites are referral intermediaries that help retailers to attract consumers, and also serve consumers through rebates they can get at the retailers. What exactly is the strategic impact of cash back sites on retailer pricing? We examine this by analyzing two competing retailers that use a cash back site to serve consumers some of whom are loyal, some switchers and some searchers. We formulate a multi stage game by extending Narasimhan(1988) and Stahl(1989) and solve for the sub-game perfect Nash equilibrium. We find that the cash back site can allow retailers to profitably eliminate consumer search and that makes retailer sites more sticky. Thus, cash back sites can act as strategic partners of retailers. Surprisingly, even consumers that use the cash back site can be worse off in the presence of cash back sites under some conditions. In particular, if search prevention is profitable even without a cash back site, then cash back sites result in higher price to consumers. We also offer practical guidance through our finding that the optimal discount offer should be proportional to price rather than a flat sum.

All the faculties and students are welcome to attend this lecture!