A model on location-based service as infomediary

Abstract

With the explosive growth of Smartphone and telecommunication network, Location Based Service (LBS) becomes an essential application of mobile commerce. LBS application can assist consumers in getting relevant information on the spot, thus helps the consumers to make purchase decision under that particular context. Motivated by this unique feature of LBS, we study how LBS as infomediary changes the way people using information for decision making and how it differs from previous internet infomediary. We firstly classify LBS into different types and then propose a stylized model by synthesizing the price dispersion with horizontal differentiation to investigate the impact of LBS as Infomediary on retail competition and the optimal LBS adoption strategies. Previous research on prevailing Internet Infomediary has shown that the optimal LBS adoption pattern is that only one retailer adopts LBS. However, our results show that the optimal LBS strategy for LBS infomediary is that neither retailer adopts LBS. The location feature of LBS would let the retailers to price more aggressively in order to get more demand at early stage, which would limit the equilibrium profit in the subsequent pricing stages. Moreover, by comparing the results for both Internet infomediary and LBS infomediary, retailers' profit is always lower for LBS infomediary and the reduced profit depends on location parameter and consumer segmentation. We discuss the implications of our findings for retailers' marketing and technology strategies in the market with LBS. © 2012 ACM.