A strategic analysis of multi-channel expert services

Abstract

Using stylized models, we investigate when and how expert service providers should offer their services online, and whether they should charge separate prices for face-to-face and online services or provide the online service as a free supplement. Interestingly, consumer surplus can rise when a monopolist charges different prices for face-to-face and online services, and it may drop when the monopolist starts offering the online service as a free add-on to its face-to-face service. We find that a market-wide adoption of the online channel by competing experts in a duopoly setting intensifies price competition and thereby reduces overall profits. Furthermore, the rate of adoption is highest when the online service is moderately effective, whereas one of the experts refuses to offer the service when it is highly effective. These results provide theoretical support for the viability of online expert services as well as practical guidance on pricing strategies.