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Chinese Journal of Management Science ›› 2017, Vol. 25 ›› Issue (12): 117-125.doi: 10.16381/j.cnki.issn1003-207x.2017.12.013

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Based On the Double Product Hotelling Model Flexible Product Pricing Strategy Research Of Online Advertising

XU Shu-jun   

  1. School of International Business Administration, Shanghai University of Finance and Economics, Shanghai 200433, China
  • Received:2016-04-12 Revised:2017-01-09 Online:2017-12-20 Published:2018-02-10

Abstract: Online advertising has grown at a fast pace over the past decade and the growth is not expected to slow down in the future. But it is challenging for online pages supplier that online AD pages capacity is perishable and its market demand is of great uncertainty. It makes AD pages supplier adopt the Flexible Page Strategy (FPS) to increase their revenue. In this paper, based on the substitutability between the online advertising spaces, a Double-Page Hotelling Model with perfect information is proposed to analyze the demanders' strategic behavior to the different price combination considering demanders' preference and consumer surplus. Our analysis thus highlights the importance of coordination the specific page (SP) pricing and flexible page (FP) pricing to maximize the supplier's revenue. Studies have shown that in order to maximize their revenue through FPS, the supplier shall coordinate price SP and FP, otherwise will be falling for two price trap resulting in reduced revenue.
It is found that there is the optimal pricing for FPS of the supplier. When pricing of SPis moderate, if the capacity is large enough, FPS can always make the supplier revenue maximum, which increase as the demand preference utility sensitivity will monotonously increase.And if the capacity is not very big, as long as the preferences utility sensitivity of the demanders is enough big, FPS can improve the supplier's revenue.If the capacity is too small, it is not necessary to adopt FPS.

Key words: online AD, flexible page, double-page hotelling model, pricing strategy, revenue management

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