Live streaming selling strategies of online retailers with spillover effects

Abstract

This paper investigates online retailers’ optimal strategies in a highly competitive market where they distribute products via regular selling or live streaming selling with spillover effects, and examines the impacts of these strategies on consumer surplus (CS) and social welfare (SW). Using analytical models, we first explore whether and when two competing online retailers to adopt the live streaming sales strategy in an online market with spillover effects. Furthermore, the implications of their optimal strategies on CS and SW are analyzed. Lastly, we relax our assumptions to consider some general scenarios: (1) When the two online retailers engage in sequential pricing, and (2) when some consumers are time-constrained. The main findings are as follows: (1) Online retailers should sometimes sell their products via live streaming, even though it is more likely to send a low quality signal to consumers. Although the positive spillover effects of other competitors’ live streams are strong, retailers may prefer their competitors to adopt the regular selling mode. (2) CS and SW would be significantly improved by the introduction of the live streaming mode when live streams can greatly enhance consumers’ quality beliefs and their spillover effects are relatively strong but not too strong. (3) Pricing sequences do not affect the optimal live streaming sales strategy, while the presence of time-constrained consumers makes online retailers less likely to sell through live streaming.