Dynamic market share through advertising and loyalty reward programs: A case study of Ofo versus Mobike

Abstract

The emerging business models have impelled firms’ competition in a brand-new and fast-growing market. This study examines such a competition for market share through advertising and loyalty reward programs. Two stages can be distinguished based on the transformation of the competition strategies. These stages can be formulated as a dynamic differential game model and a static Hotelling game model. The operation strategies and performances of two firms are determined and compared via analytical studies and case analyses toward a bicycle-sharing program, i.e., Ofo versus Mobike. Historical data are used to fit the curve of the market size and to estimate the parameter values of these models. The results show that during the first stage, the difference in market share between these firms gradually decreases (increases) when the advertising response constant is low (high). Meanwhile, in the second stage, these firms offer converse reward strategies.