Pricing and quality decisions in platform-based retailing with targeted promotion

This paper considers a platform-based supply chain consisting of a firm launching a new product with a targeted promotion strategy based on innovation on a retailing platform. We examine the firm's optimal decisions on pricing, product quality design and promotional effort to deal with market uncertainty. First, with exogenous quality, we show that market size has a positive impact on the optimal effort level, which is contrary to the intuition that the optimal effort level decreases with the existing market size due to concave increasing costs. Furthermore, we study the scenario with endogenous quality but with exogenous price and find that the optimal effort level will decrease with market size if the market size is sufficiently large. Finally, with endogenous effort, price, and quality decisions, our result indicates that the firm exerts more efforts in such a platform-based targeted promotion than in the former scenarios when facing strict industry standards.