Young Kwark. Warrington College of Business, University of Florida, 1454 Union Road, Gainesville, FL U.S.A.

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1 ESEC TICE PTFOM O WOESE? STTEGIC TOO FO ONINE ETIES TO ENEFIT FOM TI-PTY INFOMTION Young Kark Warrngton College of usness, Unversty of Florda, 1454 Unon oad, Ganesvlle, F 3611 U.S.. {young.kark@arrngton.ufl.edu} Janqng Chen and Srnvasan aghunathan Jndal School of Management, Unversty of Teas at allas, 800 West Cambell oad, chardson, TX U.S.. {chenjq@utdallas.edu} {sraghu@utdallas.edu} end ervaton of Condtonal Eectaton of Msft Proof. Cumulatve densty functon of s, condtonal on the consumer s true degree of msft λ beng z, can be formulated as P(s # y λ z (1 y (y z, here (@ s the eavsde ste functon that evaluates to zero f the argument s negatve, and to one otherse. The corresondng robablty densty functon s P(s y λ z (1 δ(y z, here δ( s the rac delta dstrbuton that satsfes Usng the ayes a, δ ( d 0 for 0 1 and δ ( for 0 ( λ P z s y ( λ ( λ Ps ( y Ps y zp z ( 1 δ( y z (44 and the condtonal eectaton s 1 1 E( λ s y λ ( 1 δ( y λ dλ 1 λdλ y y MIS Quarterly Vol. 41 No. 3 endsetember 017 1

2 Kark et al. Strategc Tool for Onlne etalers Proof of emma 1 Proof. We denote a 1 (1 γ ( τ, a 1 (1 γ ( τ, b 1( τ α, and c 1( τ. The demand functons n Equaton (8 then can be rertten as: a b c a b c (45 The retaler s otmzaton roblem n stage 1 s characterzed by the frst-order condtons as follos: k ( a b c ( a c b and m (46 The manufacturers otmzaton roblems n stage, gven k and m are characterzed by the frst-order condtons of Equaton (9: (1 k a b c 0 (1 k a b c 0 from hch e can derve the manufacturers otmal retal rces: ab ac 4b c ab ac 4b c (47 Substtutng the retal rces, e can characterze the retaler s equlbrum roft and the manufacturers equlbrum rofts as: [ ( (4 8 ] π k( k b a m a b c a a b c m (4 b c π (1 k b(1 k ba ca m m (4 b c π (1 k b(1 k ca ba m m (4 b c (48 (49 ntcatng the manufacturers artcaton ncentves of sellng on the retaler s latform ( π μ, the retaler sets the otmal k and m by solvng the bndng constrants, π μ, smultaneously: k 1 m (4 b c ( μ μ ba ( a μ ( ca ba μ ( ba ca (4 b c ( a a (4 b c ( a a (50 Substtutng the above otmal retal rces, the commsson rate, and fed fee nto the retaler s roft: MIS Quarterly Vol. 41 No. 3 endsetember 017

3 Kark et al. Strategc Tool for Onlne etalers b(4 b c ( a a 8b ca a π μ μ (4 b c (51 emma 1 follos by substtutng substtutng a, a, a, b, and c nto the above otmal retal rces, the commsson rate, and fed fee. Smlarly, by a, b, and c nto Equaton (51, the retaler s roft can be derved as (1 ατ τ (1 γ π μ μ τ (1 4 ατ (3 4 ατ (5 Proof of Prooston 1 Proof. We notce ε (3 4 αε (1 γ (1 4 αγε (3 4 αγε (1 γ f and only f ε (3 4 αε (1 γ (1 4 αγε (3 4 αγε hch leads to the condton n Inequalty (15. Substtutng τ γε nto Equaton (5, e have the retaler s roft. (1 γ f and only f ε γ γ αε γ αε 3 3 (1 γ (1 4 αγε γ ε(3 4 αγε (1 3 (3 4 (3 ( 4 hch leads to the condton n Inequalty (16. Proof of Corollary Proof. Throughout the aend, e denote. Consumer surlus ( CS derved from roduct can be formulated as: (1 γ (1 y t 1 γ 0 ε ( ( α 1 ε 1 1 CS y t ddy 0 (1 γ (1 y t ε α 1 1 CS (1 y t ddy ε γ (53 here and are defned as n Equaton (5. The total consumer surlus CS CS CS. y substtutng the otmal retal rces from emma 1, e have MIS Quarterly Vol. 41 No. 3 endsetember 017 3

4 Kark et al. Strategc Tool for Onlne etalers t t (1 αγε (1 4 αγε (3 4 αγε (6γε 3 γε 6 γ ε (3 4 αγε 6(1 4 αγε (1 γ CS 6 γε (1 4 αγε (3 4 αγε Smlarly, e can derve the socal elfare from roduct as: γ γ (1 (1 y t 1 0 γ ε ( ( α 1 ε 1 1 SW y 0 (1 γ (1 y t ε t ddy α 1 1 SW (1 y t ddy ε (54 The total socal elfare SW SW SW. y substtutng the otmal retal rces from emma 1, e have SW [ t t ] 3 γε ( (1 αγε 6 γε (1 4 αγε When 0, e notce: CS γ εα t αγε γ ε t αγε αγε αγε 3 (1 γ 6 γ ε(1 4 αγε 6 (1 4 6 (1 4 [1 8 (1 ] SW t αγ ε t αγε αγε (1 γ 6 γ ε(1 4 αγε (1 We can verfy that both are ostve usng a condton that even the consumer th a sgnal ndcatng the largest degree of msft has ncentve to urchase. Proof of Prooston Proof. We notce t 4 αt(1 γ (1 4 αt (3 4 αt f and only f t 4 αt(1 γ (1 4 αt (3 4 αt hch leads to the condton n Inequalty (18. Substtutng τ t nto Equaton (5, e have the retaler s roft. f and only f γ α α 3 3 (1 4 αt t(3 4 αt t (1 [ 3 4 t(3 4 t ] hch leads to the condton n Inequalty (19. 4 MIS Quarterly Vol. 41 No. 3 endsetember 017

5 Kark et al. Strategc Tool for Onlne etalers Proof of Corollary 4 Proof. Consumer surlus ( CS derved from roduct can be formulated as: 1 y 1 1 y (1 (1 γ y t y ( γ ε ( ( α y ε CS t dy y t ddy 0 (1 γ (1 y t α y 1 γ CS (1 y t ddy (1 y t y ε y ε dy (55 here y and y are defned as n Equaton (6 and and CS CS CS. y substtutng the otmal retal rces from emma 1, e have are defned as n Equaton (7. The total consumer surlus [ 3 ] (1 α t (3 4 α t (1 4 α t(1 t γ ε 1 α ( t 3(3 t 3(1 4 α t (5 4 α t(1 γ CS 1 t(1 4 αt (3 4 αt Smlarly, e can derve the socal elfare ( SW derved from roduct as: SW SW ( α y y t dy y t ddy 0 ( (1 ( (1 (1 γ (1 y t α y γ y t ddy y t dy y ε y ε y ε (1 γ (1 y t y γ ε (56 The total socal elfare SW SW SW. y substtutng the otmal retal rces from emma 1, e have. (1 α t (3 4 α t SW 3 t(4 t( γ ε 3(1 4 α t (1 γ 1 t(1 4 αt(3 4 αt When 0, CS f and only f CS αt t(9 4 αt t[3 8 αt(1 α t] [1 8 αt(1 αt] γ ε <0 3 (1 4 αt 8(1 4 αt 8(1 4 αt 1 t(1 4 αt hch leads to the condton n Inequalty (1. SW f and only f SW αt t[1 4αt 4 α t(1 α t] [1 8 α t(1 α t] γ ε (1 4 αt 4(1 4 αt 1 t(1 4 αt hch leads to the condton n Inequalty (. Proof of emma Proof. We denote a 1 (1 γ ( τ, a 1 (1 γ ( τ, b 1( τ α, and c 1( τ. The demand functons n Equaton (8 then can be rertten as MIS Quarterly Vol. 41 No. 3 endsetember 017 5

6 Kark et al. Strategc Tool for Onlne etalers a b c a b c (57 The retaler s otmzaton roblem n stage s characterzed by the frst-order condtons of Equaton (3: a b c c( b( 0 a b c c( b( 0 from hch e can derve the retaler s otmal retal rces as functons of the holesale rces: a b a c ( b c a b a c ( b c The manufacturers otmzaton roblems n stage 1 are characterzed by the frst-order condtons of Equaton (4: (58 1 ( a b c 0 1 ( a b c 0 from hch e can derve the otmal holesale rces: ab ac 4b ab ac 4b c c (59 Substtutng the above otmal holesale rces nto Equaton (58, e derve the otmal retal rces: ab ac ab ac (4 b c ( b c ab ac ab ac (4 b c ( b c (60 Wth the above equlbrum demands, the otmal holesale rces n Equaton (59, and the otmal retal rces n Equaton (60, e have the retaler s equlbrum roft: π ( ( 3 ( a a b ( a b a c( a b a c b 4( b c ( b c ( b c(4 b c (61 emma follos by substtutng a, a, 6 MIS Quarterly Vol. 41 No. 3 endsetember 017 a, b, and c nto the above otmal holesale rces and retal rces. Smlarly, by substtutng a, b, and c nto Equaton (61, the retaler s roft can be derved as

7 Kark et al. Strategc Tool for Onlne etalers π (1 ατ (1 ατ (1 γ 8 α(1 4 ατ 8 τ(1 ατ(3 4 ατ (6 Proof of Prooston 3 Proof. (a We notce ε (3 4 αε (1 γ (1 4 αγε (3 4 αγε (1 γ f and only f ε (3 4 αε (1 γ (1 4 αγε (3 4 αγε hch leads to the condton n Inequalty (9. (b Substtutng τ γε nto Equaton (6, e have the retaler s roft. (1 γ because We notce (1 αγε 4ε (1 γ 3 γ(3 αε(6 γ(7 αε(6 γ(3 4 αε >0 3 3 (1 γ 8 ε (1 4 αγε γ (1 αγε (3 4 αγε ε [15 αε(17 γ(18 αε(0 γ(11 1 αε] (1 γ (1 4 αγε 4(1 αγε (3 4 αγε (1 γ f and only f ε [15 αε(17 γ(18 αε(0 γ(11 1 αε] (1 γ (1 4 αγε 4(1 αγε (3 4 αγε hch leads to the condton n Inequalty (30. Proof of Corollary 6 Proof. s under the latform scheme, e can smlarly derve the consumer surlus ( CS and socal elfare ( SW by substtutng the otmal retal rces n emma nto Equatons (53 and (54, resectvely: (1 αγε t (1 αγε (1 6 αγε tα (1 6 αγε (1 γ (1 αγε(5 6 αγε CS (1 4 αγε 8 α (1 4 αγε 4α ( 1 4αγε 8 γε (1 αγε (3 4 αγε t t γε (1 αγε (3 4 αγε (1 6 αγε α (1 γ (1 4 αγε (5 6 αγε (1 8 αγε (1 αγε 6γε 6(1 4 αγε 4 γ ε (1 αγε (3 4 αγε (1 γ (1 8 αγε (1 αγε MIS Quarterly Vol. 41 No. 3 endsetember 017 7

8 Kark et al. Strategc Tool for Onlne etalers ( ( (1 αγε 6γε 3γε t t (1 αγε γ ε (1 αγε (3 4 αγε (1 γ (1 4 αγε (1 8 αγε (1 αγε SW 1γε 1 4αγε 1 4 αγε (1 4 αγε 4 γ ε (1 αγε (3 4 αγε (1 γ (1 8 αγε (1 αγε When 0, CS (1 γ because 3 3 CS αε t 1 8 αγε(1 αγε 1 αγ ε t(1 4 αγε(6 αγ ε 3 (1 γ (1 4 αγε 1 γ ε (1 4 αγε 1 γ ε (1 4 αγε and e can verfy that the above s ostve usng a condton that even the consumer th a sgnal ndcatng the largest degree of msft has ncentve to urchase. SW (1 γ because SW ( t αε t 1 8 αγε (1 αγε (1 γ (1 4 αγε 1 γ ε(1 4 αγε Proof of Prooston 4 Proof. (a We notce t 4 αt(1 γ (1 4 tα (3 4 tα f and only f t 4 αt(1 γ (1 4 tα (3 4 tα hch leads to the condton n Inequalty (31. (b Substtutng τ t nto Equaton (6, e have the retaler s roft. because (1 αt (1 γ 3 4 αt(3 αt(3 αt 4t t(1 αt (3 4 αt (1 4 αt We notce t αt[17 8 αt(5 3 αt](1 γ (1 4 αt 4(1 αt (3 4 αt f and only f t αt[17 8 αt(5 3 αt](1 γ (1 4 αt 4(1 αt (3 4 αt hch leads to the condton n Inequalty (3. 8 MIS Quarterly Vol. 41 No. 3 endsetember 017

9 Kark et al. Strategc Tool for Onlne etalers Proof of Corollary 8 Proof. s under the latform scheme, e can smlarly derve the consumer surlus ( CS and socal elfare ( SW by substtutng the otmal retal rces n emma nto Equatons (55 and (56, resectvely: (1 α CS (1 α (1 6 α ( (1 6 α (1 α [11 4 α (5 α ](1 γ (1 4 αt 4 8 α (1 4 αt 8(1 4 αt 16 t(1 αt(3 4 αt γε γε[ t(1 αt (3 4 αt (1 6 αt α(1 4 αt(5 6 αt (1 8 αt(1 αt(1 γ ] 1t 1(1 4 α t 4 t (1 αt (3 4 αt (1 8 αt(1 αt (1 γ t t t t t t t t t t (1 α t (1 α t 3( t γ ε t (1 α t(3 4 αt (1 4 α t(1 8 α t(1 α t(1 γ SW [ (1 4 α t 6 t 4 t (1 α t (3 4 α t (1 8 α t(1 α t (1 γ 16 t(1 α t(3 4 α t ( t(1 α t(3 4 α t (1 8 α t(1 α t(1 γ (1 8 α t(1 α t t(3 4 α t (1 4 α t(1 γ 4 t( 1 α t(3 4 α t (1 8 α t(1 α t(1 γ (1 γ 16 (1 α (3 4 α ( (1 α (3 4 α (1 8 α (1 α (1 γ (1 8 α t(1 α t t(3 4 α t (1 4 αt(1 γ 4 t(1 α t(3 4 α t (1 8 α t(1 α t(1 γ (1 γ t t t t t t t t ] When 0, CS f and only f CS αt [1 8 αt(1 αt] γ ε t[1 4 αt(1 ( αt( (3 4 αt] <0 3 (1 4 α t 4 t(1 4 α t 8(1 4 α t hch leads to the condton n Inequalty (33. SW f and only f SW αt 3 t 1 4 αt(1 α t 1 8 α t(1 α t γ ε <0 (1 4 αt 4 t(1 4 αt hch leads to the condton n Inequalty (34. Proof of Prooston 5 Proof. When 0, the latform scheme generates more roft for the retaler than holesale scheme f and only f (1 ατ (1 6 ατ 8 α (1 4 ατ ( μ μ π π 8 α(1 4 ατ (63 hch leads to the condton n Inequalty (35. When >0, e can rerte Inequalty (63 as (1 6 ατ (1 ατ (1 γ (7 6 ατ(1 ατ π π ( μ μ 8 α (1 4 ατ 8 τ (1 ατ (3 4 ατ Therefore, π < π f and only f MIS Quarterly Vol. 41 No. 3 endsetember 017 9

10 Kark et al. Strategc Tool for Onlne etalers τ > ατ ατ ατ ατ α ατ μ μ α (1 4 ατ (1 γ (1 ατ (7 6 ατ (1 (3 4 (1 (1 6 8 (1 4 ( Proof of Prooston 6 Proof. (a Under latform scheme, based on Equaton (5, e have (1 γ (1 ατ τ(3 4 ατ Under holesale scheme, based on Equaton (6, e have (1 γ (1 ατ 4 τ(1 ατ(3 4 ατ (b From the above dervatves, e have ( π π (1 γ (1 ατ (1 ατ τ(3 4 ατ 4(1 ατ Proof of Prooston 7 Proof. In the qualty-domnates-ft case th 0, CS < CS because (1 αγε α(1 4 αγε (6 γε 3γε 6αγ ε 6 αγε (1 4 αγε t t CS CS 4 αγε (1 4 αγε and e can verfy that the above s negatve usng a condton that even the consumer th a sgnal ndcatng the largest degree of msft has ncentve to urchase. SW < SW because t t SW SW 1 γε (1 4 αγε 3 γε (1 αγε <0 In the ft-domnates-qualty case th 0, CS < CS because (1 α t 1 α t(1 4 αt 3t 3 t( αt( (1 4 αt( α(1 4 αt γ ε CS CS 4 αt(1 4 α t and e can verfy that the above s negatve usng a condton that even the consumer th a sgnal ndcatng the largest degree of msft has ncentve to urchase. SW < SW because (1 αt 1 t 3 t ( γ ε (1 α t 3 t 9 α(3 4 αt t α(1 4 α t γ ε SW SW <0 4 t(1 4 αt 4 αt(1 4 αt here the second nequalty s by alyng a condton that even the consumer th a sgnal ndcatng the largest degree of msft has ncentve to urchase. 10 MIS Quarterly Vol. 41 No. 3 endsetember 017

11 Kark et al. Strategc Tool for Onlne etalers nalyss of Model Etensons Proof of emma 3 and esults on the Effects of Precson Imrovement under Non-Zero Qualty fference Proof. The roof s the same as that of emma 1, ecet that e no have denote a 1 [ γδ (1 γ ]( τ and a 1 [ γδ (1 γ ]( τ. y substtutng a, a, b, and c nto the otmal retal rces, commsson rate, and fed fee derved n the roof of emma 1, e obtan the results n emma 3. Smlarly, e can derve the retaler s roft as (1 ατ τ γ δ (1 γ γδ (1 γ π μ μ τ (1 4 ατ (3 4 ατ (3 4 ατ (a In qualty-domnates-ft case th δ : (1 γ because (1 γ f and only f ε 4αεδ (1 γ (1 4 αγε (3 4 αγε ε 4αεδ (1 γ (1 4 αγε (3 4 αγε That s, (1 γ f and only f δ <(3 4 αγε [4 α(1 4 αγε ]. (1 γ f and only f π ε δ 3 4 αγε(3 4 αγε 3 3 (1 γ (1 4 αγε γ ε(3 4 αγε That s, (1 γ f and only f 3 3 δ < γ ε (3 4 αγε [(1 4 αγε (3 1αγε 16 α γ ε ]. ll together, e can conclude that the results on the effects of recson mrovement reman the same as n Prooston 1 hen δ s small. (b In ft-domnates-qualty case th δ : because t 4αδ t (1 4 αt (3 4 αt f and only f t 4αδ t (1 4 αt (3 4 αt MIS Quarterly Vol. 41 No. 3 endsetember

12 Kark et al. Strategc Tool for Onlne etalers That s, f and only f δ <(3 4 αt [4 α(1 4 αt ]. f and only f π t δ 3 4 α t(3 4 α t. 3 3 (1 4 αt t(3 4 αt That s, f and only f 3 3 δ < t (3 4 αt [(1 4 αt (3 1αt 16 α t ]. ll together, e can conclude that the results on the effects of recson mrovement reman the same as n Prooston hen δ s small. Proof of emma 4 and esults on the Effects of Precson Imrovement under Non-Zero Qualty fference Proof. The roof s the same as that of emma, ecet that e no have a 1 [ γδ (1 γ ]( τ and a 1 [ γδ (1 γ ]( τ. y substtutng a, a, b, and c nto the otmal holesale rces, retal rces, and retaler roft derved n the roof of emma, e obtan the results as n emma 4. Smlarly, e can derve the retaler s roft as π (1 ατ (1 ατ γδ (1 γ 8 α(1 4 ατ 8 τ(1 ατ(3 4 ατ (a In qualty-domnates-ft case th δ : (1 γ because ε 4αεδ (1 γ (1 4 αγε (3 4 αγε (1 γ f and only f ε 4αεδ (1 γ (1 4 αγε (3 4 αγε That s, (1 γ f and only f δ <(3 4 αγε [4 α(1 4 αγε ]. (1 γ because ε αεδ[17 8 αγε(5 3 αγε] (1 γ (1 4 αγε 4(1 αγε (3 4 αγε (1 γ f and only f 1 MIS Quarterly Vol. 41 No. 3 endsetember 017

13 Kark et al. Strategc Tool for Onlne etalers ε αεδ[17 8 αγε(5 3 αγε]. (1 γ (1 4 αγε 4(1 αγε (3 4 αγε That s, (1 γ f and only f δ <(1 αγε(3 4 αγε [ α(1 4 αγε(17 40αγε 4 α γ ε ]. (1 γ because π ε (1 αγε (1 αγε [3 4 αγε (3 αγε (3 αγε ] δ 3 3 (1 γ (1 4 αγε 8 γ ε (1 αγε (3 4 αγε ll together, e can conclude that the results on the effects of recson mrovement reman the same as n Prooston 3 hen δ s small. (b In ft-domnates-qualty case th δ : because t 4αδ t (1 4 αt (3 4 αt f and only f t 4αδ t (1 4 αt (3 4 αt That s, f and only f δ α α α <(3 4 t [4 (1 4 t ]. because t αtδ [17 8 αt(5 3 αt] (1 4 αt 4(1 αt (3 4 αt f and only f t αδ t [17 8 αt(5 3 αt]. (1 4 αt 4(1 αt (3 4 αt That s, f and only f δ α α α α α α < (1 t (3 4 t [ (1 4 t (17 40 t 4 t ]. because π t(1 αt (1 αt[3 4 αt(3 αt(3 αt] δ 3 3 (1 4 αt 8 t(1 αt (3 4 αt ll together, e can conclude that the results on the effects of recson mrovement reman the same as n Prooston 4 hen δ s small. MIS Quarterly Vol. 41 No. 3 endsetember

14 Kark et al. Strategc Tool for Onlne etalers Proof and esults on the Effects of Precson Imrovement under fferent Precsons mong Consumers Proof. (a Effect of Thrd-Party Informaton under Platform Scheme enotng the notatons as a a ( a a, b ( a a ( τ ( a a α, and c ( a a ( τ hen 0, e can relcate the same rocess as n the roof of emma 1. ecause a a 1, t s easy to see that all terms are reduced to those n our baselne model by relacng τ th a ne term τ, τ ( a a τ τ [ aτ a τ ], here τ { γ ε, } and τ { γ ε, } t t th τ γ ε for the qualty-domnates-ft case and τ t for the ft-domnates-qualty case. Therefore, e can obtan the otmal retal rces and the retaler s roft: τ 1 4ατ (1 ατ τ π μ μ (1 4 ατ Notce that n emma 1 n our base lne model, τ γε n the qualty-domnates-ft case and τ t n the ft-domnates-qualty case, here τ γ ε n the qualty-domnates-ft case and τ t n the ft-domnates-qualty case. In the case th dfferent recsons across consumers, t s also found that τ γ a ( a a γ ε ( a γ a γ and τ γ γ ε γ γ > n the qualty-domnates-ft case and a ( a a ( a a 0 τ a ( a a t ( a a and τ a ( a a t ( a a n the ft-domnates-qualty case. ecause the sgns of the mact of recson arameters on τ n the baselne model and τ n the the model th heterogeneous recsons are the same, and the equlbrum quanttes n the to models dffer only on ths varable, t s easy to see the effect of the mroved recson from the thrd-arty nformaton s qualtatvely same n both these models. We net sho the detaled analyss under the latform scheme. (a.1 In the qualty-domnates-ft case: (1 γ because a εγ (1 γ a γ a γ 4αεγ γ (1 γ because a εγ (1 γ a γ a γ 4αεγ γ (1 γ because (1 γ because 14 MIS Quarterly Vol. 41 No. 3 endsetember 017 a ( a a ( a a π εγ γ γ 3 (1 γ γ γ 4αεγ γ

15 Kark et al. Strategc Tool for Onlne etalers π a εγ a γ a γ 3 (1 γ a γ a γ 4αεγ γ (a. In the ft-domnates-qualty case: >0 because a t a a 4α t >0 because a t a a 4α t >0 because a t( a a ( a a 4 t π 3 α >0 because (b Effect of Thrd-Party Informaton under Wholesale Scheme a t( a a ( a a 4 t π 3 α Smlarly, usng the notatons defned a a ( a a, b ( a a ( τ ( a a α, and c ( a a ( τ hen 0, e can relcate the same rocess as n the roof of emma. elacng τ th τ ( a a τ τ [ aτ a τ ], here τ { γ ε, } and τ { γ ε, } th τ γ ε for the qualty-domnates-ft case and τ for the ft-domnates-qualty case, t t e can smlarly derve the equlbrum outcomes. The otmal holesale rces, retal rces, and the retaler s roft are obtaned: τ 1 4ατ 1 6ατ 4 α(1 4 ατ t π (1 ατ 8 α(1 4 ατ s shon under the latform scheme, e sho the analyss under the holesale scheme. (b.1 In the qualty-domnates-ft case: (1 γ because MIS Quarterly Vol. 41 No. 3 endsetember

16 Kark et al. Strategc Tool for Onlne etalers a εγ (1 γ a γ a γ 4αεγ γ (1 γ because a εγ (1 γ a γ a γ 4αεγ γ (1 γ because a εγ (1 γ a γ a γ 4αεγ γ (1 γ because a εγ (1 γ a γ a γ 4αεγ γ (1 γ because π a εγ a γ a γ αεγ γ 3 (1 γ a γ a γ 4αεγ γ (1 γ because π a εγ a γ a γ αεγ γ 3 (1 γ a γ a γ 4αεγ γ (b. In the ft-domnates-qualty case: >0 because >0 because >0 because a t a a 4α t a t a a 4α t a t a a 4α t 16 MIS Quarterly Vol. 41 No. 3 endsetember 017

17 Kark et al. Strategc Tool for Onlne etalers >0 because a t a a 4α t <0 because π a t a a α t 3 a a 4α t <0 because π a t a a α t 3 a a 4α t ll together, e can conclude that the man results from the baselne model stay the same quanttatvely and the nsghts carry over to the case th dfferent consumer recsons. MIS Quarterly Vol. 41 No. 3 endsetember