The impact of online recommendation on duopoly brands competition with heterogeneous searchers

The emergence of online recommendation systems has changed the channel status of traditional brands, enabling the Internet brand to enter the market and be profitable. This paper proposes a game problem of duopoly brands competition, in which searchers determine optimal search efforts and then brands decide optimal selling prices. The results show that with increasing the online recommendation strength, selling prices of the brands change in opposite direction, and efforts of the consumers search decrease. Moreover, the influence of online recommendation on profit of Internet brand is greater than that of traditional brand. When the feeble online recommendation strength is detrimental to the profit of the burgeoning Internet brand, thus the Internet brand should enhance the technical strength to reduce the online recommendation cost. However, as the online recommendation strength increases, the Internet brand's profit increases, and more profitable than the traditional brand. In addition, the results demonstrate that the Internet brand utilizes online recommender system to cannibalize traditional channel. Therefore, to combat the cannibalization effect, the traditional brand should also introduce online recommendation service to recover the loss from the smaller market share.