Strategies to Fight Ad-sponsored Rivals
We analyze the optimal strategy of a high-quality incumbent that faces alow-quality ad-sponsored competitor. In addition to competing throughadjustments of tactical variables such as price or advertisingintensity, we allow the incumbent to consider changes in its businessmodel. We consider four alternative business models, two pure models(subscription-based and ad-sponsored) and two mixed models that arehybrids of the two pure models. We show that the optimal response to anad-sponsored rival often entails business model reconfigurations, aphenomenon that we dub 'competing through business models.' We also findthat when there is an ad-sponsored entrant, the incumbent is more likelyto prefer to compete through a pure, rather than a mixed, business modelbecause of cannibalization and endogenous vertical differentiationconcerns. We discuss how our study helps improve our understanding ofnotions of strategy, business model, and tactics in the field of strategy.
Year of publication: |
2009-12-31
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Authors: | Casadesus-Masanell, Ramon ; Zhu, Feng |
Institutions: | Harvard Business School ; University of Southern California |
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