Taylan Yalcin, DBA Marketing
Thesis Chair: Elie Ofek
"The Effect of Quality Decisions on Competitive Strategy"
This paper analyses the optimal online advertising strategies of two rival firms that are differentiated in quality, in utilizing search engine and display ads. There is one important aspect that differentiates online advertising from traditional offline advertising: online advertising is interactive. It has the ability to direct consumers to the advertiser's website, where they can get further information on offerings. On the other hand, it is important to note that this is a two sided blade. A consumer who is interested in a product that she sees in an online ad can also reach information on alternative products with just a few clicks. This observation shows that there is a potential effect of online ads on the consumers' browsing path. For instance a consumer that sees an online ad for a product can perform a search for an alternative product through a search engine. There is a literature stream that concentrates only on search engines as well as a literature stream that concentrates only on display ads. Most of these works are either empirical or behavioral which resulted in considerable amount of knowledge about each subject, but there is a shortage of theoretical pieces. Moreover, there is a gap in the literature in combining what we know about in each type of online ads. This paper aims to fill this gap by modeling two competing firms that advertise online and in result prescribing a unified strategy of advertising online. In order to do so, we assume that the consumers are unaware of the products and are informed through internet advertising only. The analysis reveals that online ads can create an asymmetry between the consumers' consideration sets and this situation results in reduced competition. In addition a low quality firm's profits may increase in its rival's advertising effectiveness.
