Seminar – Search prominence in a distribution channel

Yi Zhu, Associate Professor of Marketing, Carlson School of Management, University of Minnesota 

Consumers increasingly start their online price search at a prominent retailer. This research asks whether the rise of a prominent retailer hurts channel members and consumers. We develop a search model within a distribution channel where non-shoppers sequentially conduct costly price search across retailers for a branded product. Our analysis indicates search prominence generates two effects: First, it de-escalates price competition among retailers under duopoly but intensifies competition under oligopoly; second, the prominence worsens the channel co-ordination between the manufacturer and the prominent retailer. Non-shoppers’ relative segment size and search costs moderate these two effects. In comparison with the situation without prominence, we find that (1) in a duopoly, all channel members’ prices decrease in search cost. The manufacturer (prominent retailer) is always worse (better) off, whereas the non-prominent retailer is better off if the proportion of non-shoppers is low. (2) In an oligopoly, (a) whereas the wholesale price decreases in search cost, the prominent retailer’s price will first increase and then decrease in search cost; (b) non-prominent retailers are always worse off; and (c) the manufacturer and the prominent retailer are worse off when the search cost is medium and the proportion of non-shoppers is high, whereas both of them can be better off when the search cost and the proportion of non-shoppers are low. (3) Although search prominence does not necessarily hurt the channel profit or social surplus, our analyses suggest it always results in a decrease in consumer surplus within a distribution channel.

Speaker bio

Yi Zhu is an Associate Professor, Mary & Jim Lawrence Fellow at the University of Minnesota. He received his PhD in Business Administration from the University of Southern California (USC) in 2013. He worked as a consultant at Shanghai Investment Consulting Corporation before he went to Vancouver, where he received his MA in Economics from University of British Columbia. His research interests focus on the application of industrial organisation models in digital marketing, online auctions, consumer search, advertising, media slant, sharing economy and Chinese economy. His recent works have appeared or are forthcoming at Marketing Science, Management Science, Journal of Marketing Research and International Journal of Research in Marketing. Beyond academic publications, his research has been discussed in Harvard Business Review, Forbes, Fast Company, CBS and Entrepreneur among others. Zhu is the recipient of the John D.C. Little Award for the best marketing paper published in Marketing Science or Management Science, the finalist for the Frank M. Bass Award for the best marketing paper derived from a PhD thesis published in INFORMS journals, and the finalist for the Don Morrison Long Term Impact Award by ISMS.

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