Assistant Professor of Marketing,
Warrington College of Business Administration, University of Florida
PHD (Business Administration - Marketing), Duke University, 2010
BA (Business Administration), BS (Statistics), Seoul National University, 2002
Keyword Search Advertising, Online Advertising, Two-Sided Markets; Competitive Product Policy, Retailing, Store Brands
Multi-tier store brands are growing in significance in retail outlets. In this paper, we theoretically examine the rationale for the existence of multi-tier store brands, their optimal quality levels, and their implications for consumer welfare and channel profits. We show that despite manufacturer's efforts to deter the entry of store brands by providing side payments and/or introducing additional national brands, the retailer will offer multi-tier store brands in equilibrium. Furthermore, the quality levels of store brands and national brands are interlaced, with the top-quality position being taken by a store brand unless national brands outnumber store brands. Even though the proliferation of store brands reduces product differentiation, it does not decrease consumer welfare or channel profits. However, store brands hurt the manufacturer's profits and make two-part tariff ineffective in improving channel coordination. Nonetheless, the retailer can enhance channel coordination by procuring the store brand from the national brand manufacturer. We extend our model in several directions to capture additional features of retail markets and assess the robustness of our findings.
In keyword search advertising, many advertisers operate on a limited budget. Yet how limited budgets affect keyword search advertising has not been extensively studied. This paper offers an analysis of the generalized second-price auction with budget constraints. We find that the budget constraint may induce advertisers to raise their bids to the highest possible amount for two different motivations: to accelerate the elimination of the budget-constrained competitor as well as to reduce their own advertising cost. Thus, in contrast to the current literature, our analysis shows that both budget-constrained and unconstrained advertisers could bid more than their own valuation. We further extend the model to consider dynamic bidding and budget-setting decisions.
In using the generalized second-price (GSP) auction to sell advertising slots, a search engine faces several challenges. Advertisers do not truthfully bid their valuations, and the valuations are uncertain. Furthermore, advertisers are budget constrained. In this paper we analyze a stylized model of the first-page bid estimate (FPBE) mechanism first developed by Google and demonstrate its advantages in dealing with these challenges. We show why and when the FPBE mechanism yields higher profits for the search engine compared with the traditional GSP auction and the GSP auction with advertiser-specific minimum bid. In the event that a high-valuation advertiser is budget constrained, the search engine can use the FPBE mechanism to alter the listing order with the intent of keeping the high-valuation advertiser in the auction for a longer time. The resulting increase in the search engine’s profits is not necessarily at the expense of the advertisers because the combined profits of the advertisers and the search engine increase.
In search advertising, brand names are often purchased as keywords by the brand owner or a competitor. We aim to understand the strategic benefits and costs of a firm buying its own brand name or a competitor's brand name as a keyword. We model the effect of search advertising to depend on the presence or absence of a competitor's advertisement on the same results page. We find that the quality difference between the brand owner and the competitor moderates the purchase decision of both firms. Interestingly, in some cases, a firm may buy its own brand name only to defend itself from the competitor's threat. It is also possible that the brand owner, by buying its own branded keyword, precludes the competitor from buying the same keyword. Our result also implies that the practice of bidding on the competitor's brand name creates a prisoner's dilemma, and thus both firms may be worse off, but the search engine captures the lost profits. We also discuss the difference in our results when the search is for a generic keyword instead of a branded keyword. Finally, we find some empirical support for our theory from the observation of actual purchase patterns on Google AdWords.
Recent business research points to the fortune awaiting to be tapped in low-end markets. In this paper, we investigate how the size of the low-end market influences a firm's profits and the pioneering firm's quality choice. As low-valuation consumers increase in a market, on average, consumers' willingness to pay decreases. This may lead us to expect firms' profits to decrease as the size of the low-end market increases. Our analysis shows that, if the size of the low-end market is below a threshold, an increase in the size of the low-end market may actually dampen price competition and improve profits, as firms can then strategically choose their quality levels such that their products are more differentiated. Conventional wisdom also suggests that the pioneering firm will offer a higher-quality product and earn more profits compared with the later entrant. In contrast to this notion of quality advantage, our analysis identifies circumstances in which a pioneer can offer a lower-quality product and yet earn more profits. An experimental test lends support for some of our model's predictions. We further extend the model to consider markets with multiple firms, firms with multiple products, and consumers with limited purchasing power.
“Store Brands and Channel Contracts” (with Wilfred Amaldoss)
It is well known that the traditional two-part tariff contract improves total channel profits. In the presence of a store brand, however, the traditional two-part tariff contract yields even lower total channel profits than the wholesale price contract. We propose a novel hybrid contract that increases the total channel profits despite the presence of the store brand. In equilibrium, the manufacturer can motivate the retailer to select the hybrid contract and move the channel to the Pareto superior outcome. When retailers compete, even in the absence of a double marginalization problem, the hybrid contract improves the total channel profits. In the presence of manufacturer competition, though manufacturers adopt the hybrid contract in equilibrium, it improves the total profits of some but not all the channels. Finally, we provide empirical evidence that points to the possibility that the hybrid contract could help the national brand manufacturer to earn more profits.
“Product Placement Advertising in Online Games: Implications of Social Interactions” (with Huzahong Zhao and Jinhong Xie)
Product placement campaigns are increasingly hosted in online games such as social network games and mobile games, where game players interact with each other while playing the game. In this paper, we examine the implications of game players’ social interactions for the product placement campaign in online games. In such a campaign, advertisers place a virtual product as an in-game item that game players can use free of charge. Thus, the campaign may cannibalize the sales of the paid in-game item. However, our analysis suggests that despite potential cannibalization, the campaign can actually increase the paid-item sales, due to game players’ desire to earn social recognition. Even when the paid-item sales decrease, it may be optimal to launch the campaign due to advertising revenue, but only when the social effect minimizes the decrease in the paid-item sales. When setting the value of the placed-item, the developer may also choose a value higher than the minimum required to motivate players to use the placed-item, because a higher value may motivate players to buy even more paid-items. We also discuss the impact of the game players’ desire for social recognition on the optimal targeting and pricing strategies of the developer. Finally, we report the result of a natural experiment of a product placement campaign on a popular social network game and provide evidence for the validity of some of our results.
MAR6722 Web-Based Marketing (MBA program)
MAR6237 Art and Science of Pricing (MBA program)
MAR6256 Strategy and Tactics of Pricing (Professional MBA program)