Manufacturers of consumer products often complain of lower profits in light of the growing channel dominance of retailers such as Wal-Mart, Home Depot, and other “power retailers.” The authors argue that this complaint might not be valid. In an analytical model of competing manufacturers and competing multiproduct retailers, the authors show that manufacturers may actually experience increased profits when a retailer gains an exogenous cost advantage over its rival retailer. Potential channel efficiencies exist when retailing costs are reduced. The authors illustrate that channel transactions based on bilateral bargaining capture these efficiencies by transferring market share to the more efficient retailer, thus increasing channel profits. In a bargaining relationship between a manufacturer and a retailer, the manufacturer realizes some of these enhanced efficiencies. The authors discuss the managerial implications for pricing in channels.

We consider an entrepreneur who designs a reward-based crowdfunding campaign when the campaign provides a signal about the future demand for the product and subsequent venture capital is needed. We find that both the informativeness of the campaign and considerations related to gaining access to venture capital funding affect the entrepreneur’s choice of campaign instruments, as well as her decision of whether to run a campaign. In particular, entrepreneurs should launch the campaign either when it is highly informative or when it is not informative at all. For relatively low levels of informativeness, but not so low that the venture capitalist (VC) completely ignores the campaign outcome in his funding decision, our study suggests that the entrepreneur might forgo the opportunity of acquiring information via crowdfunding because the benefits of crowdfunding are insufficient to offset the risk of campaign failure. We also find that the preference of entrepreneurs in favor of crowdfunding is stronger than that of VCs. For backers, we point out that in addition to the risk inherent in new product development, they should be cognizant of the risk that successful campaigns do not guarantee subsequent VC funding. As the use of crowdfunding platforms becomes more prevalent for entrepreneurial projects, our study offers a deeper understanding of the dual role of reward-based crowdfunding in terms of acquiring demand information and raising capital for early-stage start-ups. The online appendix is available at https://doi.org/10.1287/isre.2018.0777 .

We study the effect of user privacy concerns on competition between online advertising platforms. Online platforms attract advertisers by offering capabilities to reach audiences likely to be receptive to their ads in a timely and accurate manner. However, the collection and processing of user information required for targeting of ads may lead to privacy concerns. We model the competition between two platforms as a two-stage game where platforms announce their targeting capabilities in the first stage and advertising fees in the second stage. The presence of heterogeneity in the user and the advertiser populations with respect to their preferences for targeting leads to differentiation between platforms. While one platform offers the minimum level of targeting feasible, the other platform offers a strictly higher level of targeting. The extent of differentiation in targeting levels depends on the intensity of competition between the platforms on the user side. When competition on the user side is relatively low, the extent of differentiation is higher. Such competition for users may decline, when users are less concerned about loss of privacy or when they choose to double home. Higher targeting differentiation allows platforms to charge higher advertising fees and earn higher profits. We also consider the case where platforms can reduce the privacy concerns of users by offering them greater control over their personal information. We demonstrate that awarding user control leads to reduced targeting differentiation between platforms and lower advertising fees. Last, we derive the equilibrium targeting levels for platforms that use a subscription-based business model instead of an advertising-based business model. The online appendix is available at https://doi.org/10.1287/isre.2017.0730 .

We consider a subscription platform that offers services to variety-seeking consumers who incorporate transportation costs in their decision of how many and which vendor services to consume. ClassPass in fitness and MoviePass in entertainment are examples of such platforms. We find that for the platform to be successful, it should enter markets where consumers’ added benefit from patronizing more than one vendor is relatively high, thus strengthening the position of the platform in negotiations with the vendors. As well, managers should consider entering markets where competition between the vendors is relatively weak and in particular, where vendors benefit from local monopoly positions because of high transportation costs incurred by consumers. When entering such markets, offering the subscription contract is likely to attract new customers who are not active when the platform does not exist. Moreover, appropriate crafting of the agreement with the vendors in this case allows the parties to fully extract the surplus derived by platform customers. Last, the platform’s managers should be cognizant of the need to identify tools that facilitate alleviated price competition with vendors. Negotiating over an appropriate transfer fee per customer to pay the vendor or imposing restrictions on the level of service that their customers can use may be such tools. Offering customers lower-quality services when using the vendor in comparison with the quality they could obtain by buying directly from him may not be a successful tool to alleviate price competition. This paper was accepted by Duncan Simester, marketing.