Leveraging location-based services for couponing and infomediation

• We study how LBS, as a couponing channel and an infomediary change consumer purchase decision making.
• We propose a model by synthesizing the price dispersion with horizontal differentiation.
• We show that the optimal LBS adoption strategy is neither or both retailers to adopt.
• We compare the results of Internet infomediary and LBS infomediary and highlight the findings.

Following the explosive growth of smartphone and mobile broadband networks, location-based services (LBS) have become an essential component of mobile commerce. LBS applications can assist consumers in acquiring personalized information on the spot, inducing them to make purchase decisions at nearby shops. Motivated by its unique features, we study how LBS, as a couponing channel and an infomediary, may change the way people use information for purchase decision-making. We propose a model that combines price dispersion with horizontal differentiation to investigate the impact of LBS on retail competition. Previous research on the Internet infomediary has shown that the optimal LBS adoption pattern involves one retailer choosing to join the infomediary in equilibrium. However, our results show that the optimal LBS adoption strategy is for neither or both retailers to adopt, depending on the size of the uninformed segments and reach of services. The location identification feature of LBS would allow the retailers to price more aggressively in order to build greater demand at the initial stage; however, this will limit the equilibrium profit level in the subsequent pricing stages. We compare the results for both an Internet infomediary and a LBS infomediary and discuss the implications of our findings for retailers' pricing, promotion and technology adoption strategies for LBS.