Pricing for Collaboration Between Online Apps and Offline Venues

TL;DR

This paper develops an optimal two-part tariff model for app-venue collaborations involving POI tagging, which incentivizes venue infrastructure investment and maximizes app revenue, revealing counter-intuitive collaboration strategies.

Contribution

It introduces a novel tariff scheme that aligns incentives for both app and venue investments, outperforming existing pricing methods in POI-based collaborations.

Findings

Optimal tariff incentivizes venue infrastructure investment.

The proposed tariff achieves maximum app revenue.

Counter-intuitive guidelines for collaboration strategies.

Abstract

An increasing number of mobile applications (abbrev. apps), like Pokemon Go and Snapchat, reward the users who physically visit some locations tagged as POIs (places-of-interest) by the apps. We study the novel POI-based collaboration between apps and venues (e.g., restaurants). On the one hand, an app charges a venue and tags the venue as a POI. The POI tag motivates users to visit the venue, which potentially increases the venue's sales. On the other hand, the venue can invest in the app-related infrastructure, which enables more users to use the app and further benefits the app's business. The apps' existing POI tariffs cannot fully incentivize the venue's infrastructure investment, and hence cannot lead to the most effective app-venue collaboration. We design an optimal two-part tariff, which charges the venue for becoming a POI, and subsidizes the venue every time a user interacts with the POI. The subsidy design efficiently incentivizes the venue's infrastructure investment, and we prove that our tariff achieves the highest app's revenue among a general class of tariffs. Furthermore, we derive some counter-intuitive guidelines for the POI-based collaboration. For example, a bandwidth-consuming app should collaborate with a low-quality venue (users have low utilities when consuming the venue's products).