The advent of the Internet and related Web technologies has created an easily accessible link between a firm and its customers, and has provided opportunities to a firm to use information technology to support supplementary after-sale services associated with a product or service. It has been widely recognized that supplementary services are an important source of customer value and of competitive advantage as the characteristics of the product itself. Many of these supplementary services are information-based and need not be co-located with the product, so more and more companies are delivering these services electronically. Net-based customer service, which is defined as an Internet-based computerized information system that delivers services to a customer, therefore, is the core infrastructure for supplementary service provision. The importance of net-based customer service in delivering supplementary after-sale services associated with product has been well documented. The strategic advantages of well-implemented net-based customer service are enhanced customer loyalty and higher lock-in of customers, and a resulting reduction in competition and the consequent increase in profits. However, not all customers utilize such net-based customer service. The digital divide is the phenomenon in our society that captures the observation that not all customers have equal access to computers. Socioeconomic factors such as race, gender, and education level are strongly related to Internet accessibility and ability to use. This is due to the differences in the ability to bear the cost of a computer, and the differences in self-efficacy in the use of a technology, among other reasons. This concept, applied to e-commerce, has been called the "e-commerce divide." High Internet penetration is not eradicating the digital divide and e-commerce divide as one would hope. Besides, to accommodate personalized support, a customer must often provide personal information to the firm. This personal information includes not only name and address, but also preferences information and perhaps valuation information. However, many recent studies show that consumers may not be willing to share information about themselves due to concerns about privacy online. Due to the e-commerce divide, and due to privacy and security concerns of the customer for sharing personal information with firms, limited numbers of customers adopt net-based customer service. The limited level of customer adoption of net-based customer service affects the firm profits and the customers' welfare. We use a game-theoretic model in which we model the net-based customer service system as a mechanism to enhance customers' loyalty. We model a market entry scenario where a firm (the incumbent) uses the net-based customer service system in inducing loyalty in its customer base. The firm sells one product through the traditional retailing channels and at a price set for these channels. Another firm (the entrant) enters the market, and having observed the price of the incumbent firm (and after deducing the loyalty levels in the customer base), chooses its price. The profits of the firms and the surplus of the two customers segments (the segment that utilizes net-based customer service and the segment that does not) are analyzed in the Stackelberg leader-follower model of competition between the firms. We find that an increase in adoption of net-based customer service by the customer base is not always desirable for firms. With low effectiveness in enhancing customer loyalty, firms prefer a high level of customer adoption of net-based customer service, because an increase in adoption rate decreases competition and increases profits. A firm in an industry where net-based customer service is highly effective loyalty mechanism, on the other hand, prefers a low level of adoption by customers.
The Census Bureau of the Department of Commerce announced in May 2008 that U.S. retail e-commerce sales for 2006 reached $ 107 billion, up from $ 87 billion in 2005 - an increase of 22 percent. From 2001 to 2006, retail e-sales increased at an average annual growth rate of 25.4 percent. The explosive growth of E-Commerce has caused profound changes in marketing channel relationships and structures in many industries. Despite the great potential implications for both academicians and practitioners, there still exists a great deal of uncertainty about the impact of the Internet channel introduction on distribution channel management. The purpose of this study is to investigate how the ownership of the new Internet channel affects the existing channel members and consumers. To explore the above research questions, this study conducts well-controlled mathematical experiments to isolate the impact of the Internet channel by comparing before and after the Internet channel entry. The model consists of a monopolist manufacturer selling its product through a channel system including one independent physical store before the entry of an Internet store. The addition of the Internet store to this channel system results in a mixed channel comprised of two different types of channels. The new Internet store can be launched by the independent physical store such as Bestbuy. In this case, the physical retailer coordinates the two types of stores to maximize the joint profits from the two stores. The Internet store also can be introduced by an independent Internet retailer such as Amazon. In this case, a retail level competition occurs between the two types of stores. Although the manufacturer sells only one product, consumers view each product-outlet pair as a unique offering. Thus, the introduction of the Internet channel provides two product offerings for consumers. The channel structures analyzed in this study are illustrated in Fig.1. It is assumed that the manufacturer plays as a Stackelberg leader maximizing its own profits with the foresight of the independent retailer's optimal responses as typically assumed in previous analytical channel studies. As a Stackelberg follower, the independent physical retailer or independent Internet retailer maximizes its own profits, conditional on the manufacturer's wholesale price. The price competition between two the independent retailers is assumed to be a Bertrand Nash game. For simplicity, the marginal cost is set at zero, as typically assumed in this type of study. In order to explore the research questions above, this study develops a game theoretic model that possesses the following three key characteristics. First, the model explicitly captures the fact that an Internet channel and a physical store exist in two independent dimensions (one in physical space and the other in cyber space). This enables this model to demonstrate that the effect of adding an Internet store is different from that of adding another physical store. Second, the model reflects the fact that consumers are heterogeneous in their preferences for using a physical store and for using an Internet channel. Third, the model captures the vertical strategic interactions between an upstream manufacturer and a downstream retailer, making it possible to analyze the channel structure issues discussed in this paper. Although numerous previous models capture this vertical dimension of marketing channels, none simultaneously incorporates the three characteristics reflected in this model. The analysis results are summarized in Table 1. When the new Internet channel is introduced by the existing physical retailer and the retailer coordinates both types of stores to maximize the joint profits from the both stores, retail prices increase due to a combination of the coordination of the retail prices and the wider market coverage. The quantity sold does not significantly increase despite the wider market coverage, because the excessively high retail prices alleviate the market coverage effect to a degree. Interestingly, the coordinated total retail profits are lower than the combined retail profits of two competing independent retailers. This implies that when a physical retailer opens an Internet channel, the retailers could be better off managing the two channels separately rather than coordinating them, unless they have the foresight of the manufacturer's pricing behavior. It is also found that the introduction of an Internet channel affects the power balance of the channel. The retail competition is strong when an independent Internet store joins a channel with an independent physical retailer. This implies that each retailer in this structure has weak channel power. Due to intense retail competition, the manufacturer uses its channel power to increase its wholesale price to extract more profits from the total channel profit. However, the retailers cannot increase retail prices accordingly because of the intense retail level competition, leading to lower channel power. In this case, consumer welfare increases due to the wider market coverage and lower retail prices caused by the retail competition. The model employed for this study is not designed to capture all the characteristics of the Internet channel. The theoretical model in this study can also be applied for any stores that are not geographically constrained such as TV home shopping or catalog sales via mail. The reasons the model in this study is names as "Internet" are as follows: first, the most representative example of the stores that are not geographically constrained is the Internet. Second, catalog sales usually determine the target markets using the pre-specified mailing lists. In this aspect, the model used in this study is closer to the Internet than catalog sales. However, it would be a desirable future research direction to mathematically and theoretically distinguish the core differences among the stores that are not geographically constrained. The model is simplified by a set of assumptions to obtain mathematical traceability. First, this study assumes the price is the only strategic tool for competition. In the real world, however, various marketing variables can be used for competition. Therefore, a more realistic model can be designed if a model incorporates other various marketing variables such as service levels or operation costs. Second, this study assumes the market with one monopoly manufacturer. Therefore, the results from this study should be carefully interpreted considering this limitation. Future research could extend this limitation by introducing manufacturer level competition. Finally, some of the results are drawn from the assumption that the monopoly manufacturer is the Stackelberg leader. Although this is a standard assumption among game theoretic studies of this kind, we could gain deeper understanding and generalize our findings beyond this assumption if the model is analyzed by different game rules.
Yeoheon Jang Hyeongwang(1554-1637), one of the greatest Mid-Joseon Confucianists did systematic studies on universe and nature. It can be considered that he inherited the academic tradition of Cho Sik (曺植) and Jeong Gu(鄭逑) and followed their steps of fengshui (風水) and compilation of geographical records. His living and thought and deserve researching with regard to geographical studies. This paper attempts to analyze Yeoheon's recognition of geography in general. In other words, I shall prove that his view of geography is Neo-Confucian. At the same time, I shall discuss how he named people's residence, how he understanded the Joseon territory, what he thought about fengshui, and what significance the complication of geographical records by his disciples had. Yeoheon considered that land is composed of water, fire, earth, and rock, and understanded the land according to the theory of Zhouyi (周易). He analyzed geographic environments by the system of Zhouyi. His study of geography is basically intended for practical use, and as a result is necessary for people to choose where to live and where to cultivate. In his opinion, it is essential to divide the land of the Joseon by means of geographical differences in order to help people to find a better place to live. We can see his Confucian view from the fact that he placed a greater emphasis on human beings over nature. Therefore, the practical use for humans is the first priority in his study of geography. Meanwhile, he considered nature itself as only the object of study. He realized the vitality of life by making a close observation of nature and attained the mind of the Heaven and Earth in a detached way. He, as a follower of Neo-Confucianism, enjoyed the land by feeling comfortable with his present status and by being satisfied with himself. He put his Confucian view of universe and world into practice in his life. As a part of his efforts, he named his residence and surrounding natural environments with the polar star and 28 stars, and accordingly they are reconstructed in a system of universe. The Confucian tradition of dongcheon gugok (洞天九曲) starting with Zhu Xi's administration of wuyi jiugu (武夷九曲) was widely prevalent during the Joseon period, but Yeoheon's system of organizing places is original. His sense of naming places reflects his ideas of following his predecessors, comparing natural objects to human emotions, and desiring to live in retirement. Yeoheon understanded the Joseon territory with comparison of the Chinese land. He expressed his knowledge in the form of changing geographical features of a district, appreciating natural beauty, locating towns, and being familiar with a region, and proposing his own climatology and view of the reality. His recognition of the Joseon territory resolves itself into the following several points. He regarded the Joseon territory as one organism, and considered the territory to be composed of ki (氣) as Neo-Confucianists usually do. In addition, he understanded not only natural environments but also towns from a perspective of the fengshui and adopted a comparative methodology in dividing regions. He also applied climatology to analyze persons and customs. He employed the methodology of fengshui from the comprehensive theory of the Yijing. It is because he was influenced by Cho Sik and Jeng Gu. Yeoheon chose dwelling places for people, or gave advice on several places of his hometown relying on his knowledge of fengshui. When it comes to his theory of fengshui, he agreed with the theory of topography with regards to the fengshui of tombs, but criticized the custom of delaying funerals in order to turn fortune in one's favor. In addition, he accepted that it is necessary to complement a town by creating forests around it. We need to pay attention to the fact that Yeoheon's disciples complied several geographical records. It proves that they inherited the tradition of "valuing practical use and governing on behalf of the people" from Cho Sik and Jeong Gu. Yeoheon put a great emphasis on geographical records and encouraged his disciples to compile them. In other words, he emphasized that they, as administrator or intellectual, need to be erudite in the history and custom of a region where they have lived, and have to establish a standard to encourage or warn people in the region while considering the geographical records. His opinion functioned as a guideline for his successors to compile geographical records later. This paper only analyzed several facts with regard to Yeoheon's knowledge of geography and an academic tradition concerning the study of geography. In the future, I shall discuss how his predecessors and successors understanded geography and how the tradition of compiling geographical records was transferred and developed between them. I believe that this study will contribute to establishing the history of geography, which the Joseon Confucianists researched for a long time but we have not paid an enough attention to until now.