Affiliated marketing

In information-intensive environments some firms may be sending their customers to other firms’ or affiliates’ websites in order to generate additional sales for their affiliates. Although this may provide a choice for the customers, from a firm’s point of view such strategies have the potential to cannibalize own sales. Hence, when customers purchase from other firms’ websites, the firm may loose its own customers. This study analyzes the optimality of such strategies using an analytical framework. The findings show that a firm may increase its prices and profit when its own customers purchase from other firm websites. An analysis of customer surplus and total welfare show that such strategies may have adverse effects. The results show that customer surplus and total welfare may decrease as a result of affiliations.