Strategy analysis for a digital content platform considering perishability

Abstract

With the vigorous development of e-commerce, digital content consumption has prospered in the consumer market. Considering the perishability of digital content products and the negative utility of advertisements on users, the paper develops a dynamic game model for the supply chain with a digital content platform and an upstream advertiser, and obtains the optimal (or equilibrium) resource investing, pricing, and advertising strategies under the centralized and decentralized decision-making cases. The main results show that the marketing strategies of pricing and advertising are constant over the planning horizon, while the operation strategy of resource investing which depends on digital content products’ perishability is decreasing over time. And, the platform may open resource for free to benefit more from advertising. Furthermore, for a certain region with relatively small price sensitivity, a counterintuitive result is obtained that the resource investing level and the profits of both members increase with the price sensitivity under the decentralized case, which is in sharp contrast to the centralized case. Finally, ignoring the product perishability in the decision-making process will cut down the resource investment level and profit, and the profit loss is intensified by a lower price or advertising sensitivity of consumers.