Marketing Strategies in the Presence of Externalities

Abstract

Externalities arise when an economic agent’s activities generate side effects on the activities, welfare, or outcomes of other agents, or even the agent itself. Their impact on marketing strategies is inevitable, and overlooking these externalities may lead businesses to miss key factors and valuable opportunities. Although a substantial body of literature in economics and marketing has examined various externalities, the definitions of the concept and implications for marketing strategies vary. Furthermore, extant literature on the platform economy has primarily focused on externalities within the marketplace, while few studies have examined various externalities in livestream shopping and influencer marketing. This dissertation addresses these gaps. Chapter 1 expands the definition of externalities and synthesizes the relevant literature on how common externalities affect marketing strategies from three perspectives: marketplaces, firms, and consumers. Chapters 2 through 4 are each positioned within these perspectives, examining the marketing applications of externalities across different contexts. Chapter 2 examines cross-platform network externalities, the externalities between two marketplaces in the platform economy. Existing studies have focused on cross-side network externalities between buyers and sellers within a single marketplace. My study highlights that multi-homing users—those who use multiple platforms—connect the economies on these platforms by interacting with other users through cross-side network externalities within these platforms. Consequently, cross-platform network externalities arise when two platforms share a sufficient number of multi-homing users. Using an analytical model, I illustrate and quantify the formation of cross-platform network externalities and their impact on platform pricing decisions. Chapter 3 studies two externalities in livestream shopping, a new business model that offers interactive, entertaining, and real-time online shopping experiences. In this context, influencers can schedule their shows at any time to engage with their audience. One type of externality that affects their timing decisions is scheduling consistency, which refers to the effects of the influencers’ previous show dates on the timing of the current one. Another type is the externality exerted by other influencers streaming simultaneously with the focal influencer. Using a comprehensive dataset. I empirically investigate how these two externalities affect influencers’ timing decisions in livestream shopping. Chapter 4 explores two types of externalities in influencer marketing, where brands incentivize influencers to promote their products or services. In this brand-influencer collaboration, an externality arises when brands’ actions generate a side effect on the influencers. For example, a brand’s established awareness may enhance the influencer’s popularity. In addition, externalities exist among the influencers’ audience, as one audience’s purchases may influence other audiences’ purchasing decisions. Analytical models are used to examine how these externalities affect brand influencer collaboration strategies.