Simulation of Advertising Costs on Electronic Trade Market

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Simulation of Advertising Costs on Electronic Trade Market

Journal Title: Бізнес Інформ - Year 2015, Vol 2, Issue 0

Abstract

In the article, a simulation of advertising costs in electronic commerce is carried out. A modification of the classical Salop model to correct for the influence of Internet sellers on consumer preferences by means of non-informational advertising has been implemented. In the modified model, advertising costs are implicit function parameter in consumer utility, which shifts the demand curve immediately, increases the consumer utility and the willingness of consumers to make purchases. Relationships of amounts of advertising expenses, number of sellers and volumes of electronic trading market have been explored. It has been displayed that with expansion of trade market advertising costs of on-line sellers are exponentially increasing. The increase in the number of on-line sellers helps to reduce the advertising costs, and consequently, consumer utility of items for each customer is reduced, which in turn lowers the maximum price level, which can be set by a seller. With a permanent number of consumers in the market, growth of advertising costs when reaching the limit of saturation does not increase the target audience and the level of readiness to purchase advertised products. Expansion of electronic trade market after reaching certain values leads to a decrease in the number of on-line sellers in the market, in this case, increasing advertising costs begin to exceed the sellers profit from the market expansion.

Authors and Affiliations

Oleg Pursky, Bogdan Grynjuk, Denys Shestopal

Keywords

E-Commerce simulation advertising costs expansion of trade market

EP ID EP94979
DOI -
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