Strategies to Fight Ad-sponsored Rivals
AbstractWe analyze the optimal strategy of a high-quality incumbent that faces a low-quality ad-sponsored competitor. In addition to competing through adjustments of tactical variables such as price or advertising intensity, we allow the incumbent to consider changes in its business model. We consider four alternative business models, two pure models (subscription-based and ad-sponsored) and two mixed models that are hybrids of the two pure models. We show that the optimal response to an ad-sponsored rival often entails business model reconfigurations, a phenomenon that we dub "competing through business models." We also find that when there is an ad-sponsored entrant, the incumbent is more likely to prefer to compete through a pure, rather than a mixed, business model because of cannibalization and endogenous vertical differentiation concerns. We discuss how our study helps improve our understanding of notions of strategy, business model, and tactics in the field of strategy.
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Bibliographic InfoPaper provided by NET Institute in its series Working Papers with number 09-09.
Length: 57 pages
Date of creation: Sep 2009
Date of revision: Sep 2009
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Web page: http://www.NETinst.org/
Strategy; Business models; Tactics; Ad-sponsored; Subscription-based;
Find related papers by JEL classification:
- L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
- L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
- M21 - Business Administration and Business Economics; Marketing; Accounting - - Business Economics - - - Business Economics
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-09-26 (All new papers)
- NEP-MIC-2009-09-26 (Microeconomics)
- NEP-MKT-2009-09-26 (Marketing)
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