Advertising and pricing of online direct selling considering network externalities

Abstract

PurposeConsidering the network externalities of online selling, this paper builds three different online direct selling models: manufacturer direct selling (MN model), network platform direct selling (NN model) and retailer direct selling (RN model). The optimal advertising and pricing decision and corporate profits under each selling model are investigated.Design/methodology/approachCombining the characteristics of online direct selling, this paper formulates direct selling models that are dominated by different companies as Stackelberg game models. Numerical analyses are carried out, along with the comparison of the equilibrium solutions for each model.FindingsThe authors' research shows that increasing network externalities is conducive to the development of enterprises. The network platform's profit is the lowest in the RN model and the highest in the NN one. The comparison of manufacturers' profits between the MN model and the NN model primarily depends on consumers' sensitivities for sales price and advertising promotion level. The manufacturer does not benefit from the RN model due to the lowest efficiency.Originality/valueCoupled with three different online direct selling models and detailed analyses of the optimal solutions, this study has enriched the theoretical foundation of online direct selling. Moreover, this study extends the research of network externalities to the field of e-commerce, revealing the network externalities' influence on the decision-making of the e-supply chain.

Trade-in program in online platforms considering network externalities and recycling services

“…As network externalities intensify, the manufacturer can gain profits through higher sales prices and enhanced recycling service. This aligns with the conclusions corroborated by Shen et al (2023).…”

“…Yang et al (2023c) examined the impact of network externality on manufacturers' R&D investment and the introduction of new products, highlighting that a rise in network externalities might reduce manufacturer profitability. Meanwhile, Shen et al (2023) investigated pricing and advertising decisions within the online direct sales model, indicating that network externalities are conducive to the development of e-commerce enterprises.…”

The manufacturer's quality‐improvement decisions and evolutionary stable strategy of retailers' marketing objectives under network externality

“…Aoyagi (2018) found that when the strength of NE increases linearly with the sales volume of products, the market may be monopolized by enterprises, and only the two-part pricing strategy can be robust under the disturbance of linear NE. NE has more obvious influence on dominant supply chain members (Shen et al, 2022). The intensity of the delayed network effect and quality differential affect product marketing strategies (Kong et al, 2022).…”

“…NE is essentially a demand‐side scale economy, which means that the utility of consumers increases as more consumers purchase the same or compatible products (services) (Katz & Shapiro, 1985; Kong et al, 2022). Obviously, NE can influence purchasing decisions made by consumers by influencing their expectations of the market scale of products (Shen et al, 2022). The emergence of NE means consumer purchase decisions are influenced by the strength of NE and the expected demand of product.…”