Joint promotion of cross-market retailers: models and analysis

Abstract

To seek more business opportunities, cross-market retailers pursue horizontal joint promotion (HJP) to promote their products together. It is important to determine the factors that make cross-market retailers pursue HJP and how HJP affects the retailers' optimal decisions. We address such issues in the context of a shopping mall in which two cross-market retailers pursue HJP with the possible involvement of the shopping mall. We develop game-theoretic models to study whether the shopping mall should provide consumers with coupons that they can obtain from the retailer in the source market and consume at the retailer in the target market. We find that when coupons are offered to consumers, the retailer in the source market has a higher price and will pay more for HJP, but has a smaller demand and a lower profit than the retailer in the target market. Furthermore, when the effect of the coupon is relatively large, both retailers prefer the coupon as they can have higher prices, demands, and profits, and their promotional strategies change with the denomination and effect of the coupon. Conversely, both retailers would reduce investments in HJP because the coupon may bring them lower profits.