Optimal promotion strategies of online marketplaces

This paper considers three promotion scenarios, namely seller-leading promotion, platform-leading promotion, and no-leader promotion, and reveals the optimal strategy and decision patterns for these three scenarios using a stylised model and lab experiments. We focus on three research questions for the seller and platform as follows: (1) Which is the optimal choice between unilateral and bilateral promotion under different promotion scenarios? (2) How will the promotion scenarios affect their joint promotion? (3) To a seller/platform, is it always better to proactively initiate promotion event? Result shows that the optimal promotion strategy varies from Seller Promotion Only to joint promotion and then to Platform Promotion Only, along with an increasing commission rate. Joint promotion is optimal only when the commission rate is moderate and when the product's list price is relatively high. The promotion scenario affects the scope and intensity of joint promotion and the profit of the entities. The joint promotion leader has the first-mover advantage, which helps him/her offer fewer coupons but obtain higher profits. To a platform or seller, launching promotion events proactively is not always the best choice. Experiments show that the subjects behaved as predicted. Moreover, the subjects demonstrate distinct decision patterns under different promotion scenarios. Ultimately, our conclusions can provide valuable decision-making guidance to marketing managers in the online marketplace. They can also choose appropriate scenarios on the basis of certain promotion objectives with knowing decision patterns under each scenario.