The Design Of Manufacturer Referral Under Different Structures In The Market

In the contemporary e-business,more and more manufacturers decide to adopt manufacturer referral to avoid channel conflict.Manufacturer referral is defined as a tool,which means that the manufacturer refers other competitors’ product to its own customers and collects a sum of money to gather extra benefits.In details,this paper compares the profits bring from different referral types under two market structures:monopoly market and oligopoly market.The equilibrium referral type can be easily chosen by comparing the numerical value of each profit according to the rule of maximizing the profit.These results could provide theoretical guidance and realistic practice for manufacturers’ operational decision.Through a model of one manufacturer with two heterogeneous retailers in monopoly market,the manufacturer can choose either exclusive referral or nonexclusive referral to refer the retailer(s)to its consumers.Suppose the consumers’ utility function is common knowledge,the demand function of manufacturer could be inferred by meeting the request of maximizing utility.The manufacturer would decide its wholesale price as the leader of Stackelberg,then retailers would decide each retail price accordingly and the equilibrium profit of each referral could be easily calculated.The equilibrium referral type could be chosen by comparing the profits.Similar in the oligopoly market,suppose there are two competing manufacturers providing one-way direct referral or two-way direct referral.This chapter describes the consumer utility via Hotelling model,which could deduce the demand of two competitors in different subsidiary market.The profit function of referral ratio and market shares could be inferred through the partial derivative of retail price.As mentioned,the equilibrium referral type is chosen by the numerical value of each profit.Our analysis implies that in the monopoly market,nonexclusive referral comes to be the equilibrium choice as long as the market share is sufficiently large;otherwise,the equilibrium referral type should be exclusive referral.The main results stay robust when the referral market size is asymmetric.In the oligopoly market,adopting referral is superior to non-referral strategy.Two-way direct referral comes to be the equilibrium type for the referring manufacturer,while the referred manufacturer would choose two-way direct only if the sharing proportion of revenue is sufficiently large.When the size of referral market is asymmetric,the profit of referred manufacturer would increase with the addition of its competitor’s market share,while the benefit of referring manufacturer in one-way direct referral would decrease with the addition of its competitor’s market share.The main innovation points of this paper are mentioned as follow: it describes how the sharing proportion of revenue and asymmetric referral market affect the equilibrium choice of referral type by comparing the equilibrium profits.After that,our analysis shows the manufacturer should choose which referral type when the referral market size meets the certain conditions,which provides guidance for manufacturers operation.