In-Store Referrals on the Internet
In the contemporary e-business, a retailer may display the links to the competing retailers directly (direct referral), or display the referral link provided by a third-party advertising agency (third-party referral), and these referrals may be either one-way or two-way. In this paper, we show that the referrals may align the retailers’ incentives and facilitate implicit collusion, and one-way referral may result in a mutually beneficial situation, thereby providing an economic rationale for these seemingly puzzling phenomena. Using third-party referrals may enhance the retailers’ collusion despite the potential disutility and revenue leakage, and referral services may be detrimental for the consumer welfare.
Cai, G. (George), & Chen, Y.-J. (2011). In-Store Referrals on the Internet. Journal of Retailing, 87(4), 563–578. https://doi.org/10.1016/j.jretai.2011.09.005