Economics of first-contact email advertising

Since the advent of the Internet, email has emerged as an important new form of personal communication. The focus of this research is on commercial advertising through the email channel. We analyze the underlying economics of a business model termed admediation that facilitates effective first-contact email advertising. Admediary is a trusted third party that facilitates a mutually desirable communication between buyers and sellers via email, and operates under the ‘opt-in' mode widely supported by the consumer advocacy groups. Our analytical model examines the incentive structures for all participating entities, and derives pricing strategies, profit implications and characteristics of the email lists. We develop and model a form of price discrimination we term sequential elimination price discrimination that can be practiced via email. Our results indicate that the transactions facilitated by the admediary can create significant value whereby every participating entity realizes increased benefits. These findings underscore the potential of admediation to restore email as an effective communication media for online advertising.