A multi-channel model of separating equilibrium in the face of the digital divide

Riggins, Frederick J.

doi:10.1109/hicss.2004.1265496

Cited by 5 publications

(12 citation statements)

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“…This matters because by varying the amount of product information provided, firms can achieve finer consumer segmentation and increase their market power. In a similar vein, Riggins [18] showed how the digital divide, where high type consumers dominate the Internet channel and low type consumers dominate the retail channel, artificially segments the marketplace thereby mitigating the classic cannibalization problem. Their focus is on the postInternet-channel-entry decisions regarding to prices, communication strategies, or quality differentiation.…”

Section: Related Literature and Model Formulationmentioning

confidence: 97%

Internet channel entry: retail coverage and entry cost advantage

Cheng

Nault

2007

Inf Technol Manage

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In this research we study how existing market coverage affects the outcome of the Internet channel entry game between an existing retailer and a new entrant. A market is not covered when some consumers with low reservation prices are priced out by existing retailers and do not purchase. In a model with multiple existing retailers and a potential new entrant, we demonstrate that when entry costs are equal, one of the existing retailers enters the Internet channel first. However, if the market is covered by existing retailers before entry, then because of the threat of Internet channel entry by the potential new entrant, retailer entry cannibalizes existing retail profits-cannibalizing at a loss. In addition, if a potential new entrant has a slight advantage in Internet channel entry costs and the market is not covered by existing retailers, then the new entrant enters the Internet channel first. If the market is covered by existing retailers, then the new entrant must have a larger Internet channel entry cost advantage to be first to enter the Internet channel.

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Section: Related Literature and Model Formulationmentioning

confidence: 97%

Internet channel entry: retail coverage and entry cost advantage

Cheng

Nault

2007

Inf Technol Manage

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“…Recall that d i = v i /d i . From Equations (10) and (14) we see ( ¶q l / ¶d l ) £ 0 for Case 1 and ( ¶q l / ¶d h ) £ 0 for Case 2. In other words, lowering the discomfort level for the advertising target consumer segment allows the seller to increase the quality of the content on the sponsored site and thereby increase the amount of advertising on the sponsored site.…”

Section: Propositionmentioning

confidence: 94%

“…The authors further develop the model by considering intertemporal price discrimination where the seller can segment the market using delay in addition to quality differences. Riggins [10] extends this model to a multichannel setting where the seller markets its goods to both high-and low-type consumers in an offline brick-and-mortar channel and the online Internet channel. He examines the implications of the existence of the digital divide where more high-type consumers have migrated to the online channel than low-type consumers.…”

Section: Background Literaturementioning

confidence: 98%

“…Moorthy and Png [8] show how this distortion in the marketplace may result in low-type consumers being underserved or, in some cases, not being served at all. Riggins [10] extends these results to model a firm that sells to high-and low-type consumers in online and offline channels simultaneously in the presence of the digital divide. Similarly, Riggins and Narasimhan [11] present a model that shows the impact of using personalization technology and community features to overcome the cannibalization problem.…”

mentioning

confidence: 90%

“…Based on work by Spence [15], Tirole [16], and Varian [17], information systems researchers have analyzed the use of second-degree price discrimination where firms operate within the Internet economy to sell a high quality, expensive product to high-type consumers and a low quality, inexpensive product to low-type consumers simultaneously [2,4,5,6,10,11]. Because the seller is not able to know the type of a given consumer, the seller is forced to create a separating equilibrium by setting price and quality levels so that consumers self-select into the appropriate categories.…”

mentioning

confidence: 99%

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Market Segmentation and Information Development Costs in a Two-Tiered Fee-Based and Sponsorship-Based Web Site

Riggins¹

2002

Journal of Management Information Systems

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FREDERICK J. RIGGINS is an Assistant Professor in the Department of Information and Decision Sciences of the Carlson School of Management at the University of Minnesota. His teaching interests include electronic commerce, e-business strategies, economics of information systems, and telecommunication policy. His research focuses on new business models for Internet-based commerce, strategies for implementing interorganizational systems, measuring the value of information systems, and policies affecting the diffusion of information technology. He has spoken at many conferences and published in several leading academic journals including Management ABSTRACT: We develop an analytical model of a separating equilibrium for a two-tier fee-based and sponsorship-based information Web site. We examine the monopolist's choice of content quality and price for a fee-based site targeted at high-type consumers and the content quality level for a sponsored site offered free to all consumers. We show how a reduction in the potential for advertising revenues results in lower content quality on the free site, but permits the seller to raise the fee charged to high-type consumers. We also show how differences in consumer tolerances to ads affects content quality, banner ad volume, and usage fees. In particular, the seller can increase profits by making ads more attractive to either high-or low-type consumers, but rarely both at the same time. We show the conditions that determine which consumer segment the seller should seek to improve ad relevancy.KEY WORDS AND PHRASES: information Web sites, online market segmentation, product cannibalization. Downloaded by [UQ Library] at 23:46 27 July 2015 70 FREDERICK J. RIGGINS THE INTERNET AND THE WORLD WIDE WEB have altered the way many people gather various types of information, ranging from daily news stories to contact information for old high school classmates to highly technical consultancy reports. In their search for a path to profitability, Web-based information providers have attempted various combinations of free sponsored sites and fee-based sites. Daily news stories, sports scores, and stock price information can be found on numerous sponsored sites such as CNN.com, Yahoo!, and BusinessWeek Online. Due to the collapse of the dotcom economy, these sites have struggled as the potential to gain revenues from banner advertisements has plummeted. Many sites such as Classmates.com, Britannica.com, and AOL.com provide some content for free on a sponsored site, but seek to entice users to pay a subscription fee for unique content not easily found elsewhere. For example, Classmates.com allows the nonpaying user to read a short bio of old classmates, but requires a $29.95 annual Gold Membership fee to be able to actually contact old friends and engage in chat and discussion board community features. Britannica.com offers some free content on a sponsored site, but continuously prompts the user to pay a $50 annual membership fee in order to receive full use of Britannica's unique information ...

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Market segmentation and information development costs in a two-tiered fee-based and sponsored-based web site

Riggins

Proceedings of the 35th Annual Hawaii International Conference on System Sciences

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We develop an analytical model of a separating equilibrium for a two-tier fee-based and sponsored-based information Web site. We examine the monopolist' s choice of content quality and price for a fee-based site targeted at high type consumers and the content quality level for a sponsored site offered free to all consumers. We show how a reduction in the potential for advertising revenues results in lower content quality on the free site, but permits the seller to raise the fee charged to high type consumers. We also show how differences in consumer tolerances to ads impacts content quality, banner ad volume, and usage fees. In particular, the seller can increase profits by making ads more attractive to either high type consumers or low type consumers, but never both at the same time. We show the conditions that determine which consumer segment the seller should seek to improve ad relevancy.

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A multi-channel model of separating equilibrium in the face of the digital divide

Cited by 5 publications

References 15 publications

Internet channel entry: retail coverage and entry cost advantage

Internet channel entry: retail coverage and entry cost advantage

Market Segmentation and Information Development Costs in a Two-Tiered Fee-Based and Sponsorship-Based Web Site

Market segmentation and information development costs in a two-tiered fee-based and sponsored-based web site

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