Price and Online Advertising Efforts Competition Between Platforms in a Supply Chain Under Uncertain Market Demand

Abstract

Increasing sales and profits requires a dynamical allocation of advertising budgets as online advertising demand changes over time. Online platforms offer free and subscription advertising. The impact of subscription-based pricing and free-platform services on supply chain (SC) profit and advertiser profit under uncertain demand has not been extensively studied. Moreover, there is no literature addressing how subscription platforms can benefit advertisers and the SC. To overcome this issue, in this article, we suggest a two-stage SC. Three situations are contrasted using game theory: when both platforms give free service (Model F); where one platform offers subscription-based service, while the other offers free service (Model S); and where the subscription-based platform and the advertiser are integrated (Model I). Compared with subscription-based advertising, free advertising is more profitable for advertiser. Users who move from free platforms to subscription-based platforms earn more profit. A case study illustrates our analytical findings.

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