Essays on information free-riding

This dissertation considers a phenomenon in which a retailer free-rides the product information or in-store service provided by a rival retailer. We explore the information and pricing decisions of retailers and manufacturers when such information free-riding exists. The first essay examines the information decision of an online retailer that competes with a brick-and-mortar (henceforth, BM) store. The second essay is focused on the wholesale price and service subsidizing decisions of a manufacturer. The third essay deals with the pricing decisions of a manufacturer under different supply chain structures. In Chapter 2, "Information Provision under Showrooming and Webrooming," we study the information decision of an online retailer that competes with a rival BM store. Deviations between consumers' information gathering and purchase channels may lead to showrooming and webrooming, where the former refers to obtaining product information in a BM store but purchasing it online, and the latter corresponds to the reverse. In this chapter, we endogenize consumers' information gathering and purchase decisions, and characterize the optimal information provision decision for an online retailer in the presence of a rival BM store. For instances in which showrooming can arise, we find that the optimal information level decreases in showrooming probability and that the showrooming behavior may not necessarily be detrimental to the profit of the BM store nor improve the profit of the onlineretailer. In webrooming instances, we again find that the optimal information level decreases in webrooming probability, however the profit of the online retailer always decreases in the probability that consumers consider webrooming. Further, wealso present a comprehensive overview of how various combinations of store andonline prices affect the optimal information level. Lastly, we consider an extensionfor price matching strategies. When discussing strategies to help BM stores survive the challenge of showrooming, most articles and literature focus on decisions at the retailer level, as wedo in Chapter 2. However, manufacturers may play an important role in this battle, as BM stores serve some functions that online retailers cannot perfectly mimic. For example, when consumers prefer to physically examine products prior to purchase to resolve the match uncertainty, BM stores can provide samples or the "touch andfeel" experience. In addition, some pre-sale services provided by BM stores canexpand demand. Such demand expansion effects can benefit the manufacturer and the entire supply chain. Hence, when BM stores are negatively impacted by showrooming, manufacturers may have the incentive to step in. In Chapter 3 and Chapter 4, we shift our attention to the role of a manufacturer in the supply chain. In Chapter 3, "Information Free-riding and Manufacturer's Remedy: The Impactof Wholesale Price and Service," we study the wholesale price and service subsidizing decisions of a manufacturer. We consider a supply chain in which a manufacturer sells a product through a BM store and a competing online retailer, assuming that the BM store provides pre-sale services that can induce the total demand. The online retailer free-rides such service as its demand is also increased without it providing service. Such information free-riding may lead to information under-provision and thus negatively impact the profitability of the supply chain. We investigate the effect of free-riding on the supply chain and identify the optimal price and service level. We consider two wholesale policies of the manufacturer: providing a singlewholesale price to the two retailers or providing differential wholesale prices. We find that, the service effort, wholesale prices and retail prices decrease in the degree of free-riding. If the degree of free-riding is low, under differential wholesale prices, we obtain the following results: the service effort will be lower; the wholesale price for the online retailer will be lower than that for the BM store, which is, in turn lower than the single wholesale price. If the degree of free-riding is high, the change of the above variables follows the opposite direction. Our results also indicate that the flexibility of the BM store's service effort can lessen the price competition when the two retailers are offered different wholesale prices. We identify scenarios under which all parties in the supply chain can benefit when the manufacturer provides differential wholesale prices to the two retailers. In Chapter 4, "Channel Structure and Pricing under Showrooming", we examine two pricing policies of the manufacturer under different channel structures. We consider a supply chain with one manufacturer selling a product through two channels - one BM and one online. Under the decentralized supply chain channel structure, the three parties are independent, while under the integrated supply chain channel structure, the manufacturer is integrated with the online channel. Under the price-only policy, the manufacturer offers a wholesale price to the two retailers, which then decide on the retail prices. Under the retail fixed markup (RFM) policy, retailers set their price as a markup on the wholesale price. We study how RFM affects the profitability of each supply chain member and identify situations where the RFM policy benefits all supply chain members.