A Signaling Advertising Model Between an Intelligent Consumer and Two E-tailers

Abstract

Nowadays, by increasing sales forces’ cost, trades shift more to ebusiness. In this paper, we present a signaling internet business model as a multi stage game. We consider two e-tailers and one intelligent consumer as players. The e-tailers can advertise or not, while, the consumer can search or not. The communication between one of the e-tailers and the consumer and also the interaction between the two e-tailers are considered as sequence at stages zero and one. We obtain Nash and Separating Equilibrium for each stage. Finally, Nash Equilibrium is obtained at stage two based on the historical impact of the players’ actions. We show that in the signaling models when the game is not single shot, the good reputation is as important as advertising to signal about the product quality. In addition, searching and advertising costs have a great impact on the consumer and e-tailers’ decisions.