Strategies to Fight Ad-sponsored Rivals

Ramon Casadesus-Masanell () and Feng Zhu ()
Additional contact information
Ramon Casadesus-Masanell: Strategy Unit, Harvard Business School, http://www.people.hbs.edu/rmasanell/
Feng Zhu: Management and Organization, Marshall School of Business, University of Southern California, http://marshall.usc.edu/

No 09-09, Working Papers from NET Institute

Abstract: We analyze the optimal strategy of a high-quality incumbent that faces a low-quality ad-sponsored competitor. In addition to competing through adjustments of tactical variables such as price or advertising intensity, we allow the incumbent to consider changes in its business model. We consider four alternative business models, two pure models (subscription-based and ad-sponsored) and two mixed models that are hybrids of the two pure models. We show that the optimal response to an ad-sponsored rival often entails business model reconfigurations, a phenomenon that we dub "competing through business models." We also find that when there is an ad-sponsored entrant, the incumbent is more likely to prefer to compete through a pure, rather than a mixed, business model because of cannibalization and endogenous vertical differentiation concerns. We discuss how our study helps improve our understanding of notions of strategy, business model, and tactics in the field of strategy.

Keywords: Strategy; Business models; Tactics; Ad-sponsored; Subscription-based (search for similar items in EconPapers)
JEL-codes: L12 L13 M21 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-mic, nep-mkt and nep-pke
Date: 2009-09, Revised 2009-09

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