The Effects Of The Network Externality On The Marketing Strategy Of The Private Cars Firms

The network externality is one kind of "non-market" collateral effect that one economic force to the other. It is the result of economic forces interacting(Huan Y. G.,1991). With the amount of private cars increasing, traffic congestion has been a negative network externality of the private car consumption. Meanwhile, in the process of the private cars consumption, there are two kinds of major positive network externalities. One is the status utility to display the social status of the private car consumer. The other is the herd effect.With the development of China’s economic, as well as the price decline caused by the fierce competition in the automotive market, more and more families own private cars. With the increasing of private cars’amount, traffic congestion has been a nationwide question. Many local government departments have introduced or are planning to introduce all kinds of way to deal with the congestion. The adverse effects of traffic congestion and various measures to deal with the congestion are negative network externality of the private car consumption. They inevitably affect the desire of consumers to purchase and use of private cars, which in turn have an impact on the private cars manufacturers’market strategy. However, statistics showed that China’s private cars ownership has increased at the increasing speed. This phenomenon may be attributed to the non-functional requirements that proposed by Leibenstein (1950) from the perspective of consumer motivations. The bandwagon effect and the Veblen effect are the two reasons that may cause non-functional requirements. And they are two kinds of positive network externality of the private car consumption. The bandwagon effect is also known as herding. It refers that consumers tend to follow the trend, the more others consume, the stronger their desire to buy, and the greater the effectiveness resulting from the purchase. The Veblen effect is conspicuous consumption that consumers are willing to pay extra for the social effects of commodity status display(Zhu Y. H.,2010). So we call it the status utility. The consumption of luxury cars more often reflects the concerns to the social status. But the consumption of general cars may be containing more herding characteristics. The luxury cars consumers have more social wealth than the general cars consumers. So the cities’traffic congestion and the various measures to deal with the congestion may have different affect to the two types of consumers. For a more comprehensive analysis, the effects of the status and the herding on private cars manufacturers’ market strategy have been studied respectively.The relationship between leases and sales has long been studied by academics. As one kind of durables, the firm of private car has to decide whether to market its product through leases or sales. In the automobile market, the car’s sales exhibit positive network effects. To develop a better understanding of the network externality, we develop a two period game model of private car. And study the effect of the network externality on the firms’ strategic of leasing and selling. The research shows that according to the strength of the positive external effects, the private cars manaufactures will select the strategy of leasing, selling, or the mix of leasing and selling. In the initial stage of marketing one private car brand, the positive externality is quite strong. Therefore, the private car manaufacture will compeletly sell. And the study of Desai and Purohit (1999) got that the manaufacture of durable goods will compeletly sell when the competitive is strong. The private car is one typical durable good. When the private car market is mature, the market competition has been quite strong, and the private car manaufacture will compeletly sell. Therefore, during the entire marketing process, the private car manufacturers will compeletly sell the private cars they produced.Based on the analysis above, we assume that the private car manufacturers will compeletly sell the private cars. Accordingly we analysis the impact of the urban traffic conditions, the public traffic conditions, as well as the fuel prices to the private car manufacturers’ marketing strategy when the urban exists traffic congestion. The results show that:with the intensity of the cities’ traffic congestion, the improvement of the cities’ public transport conditions, and the increase of gasoline price, the firms’ optimal dynamic prices decrease. The firms’ optimal dynamic prices decrease with the time, and the intensity of the cities’ traffic congestion, the improvement of the cities’ public transport conditions, and the increase of gasoline price intensify the firms’ optimal dynamic prices’ decrease. The improvement of the cities’ public transport conditions and the increase of gasoline price intensify the impact of the cities’ traffic congestion to the consumers and the firms of the private cars. As urban transport infrastructure is a public resource. The existence of "tragedy of the commons" in it, increasing investment in urban transport infrastructure can not fundamentally resolve the situation of urban traffic congestion. Only to develop urban public transport and increase the using cost of private car, can urban traffic congestion be eased to a certain extent.Further more, we analysis the impacts of the urban traffic conditions, the public traffic conditions, as well as the fuel prices to the private car manufacturers’ marketing strategy when there are the status utility and the herd effect. The results show that the firms’ optimal dynamic prices increase with the increase of the status utility and the herd effect. And the impacts of the urban traffic conditions, the public traffic conditions, as well as the fuel prices are unchanged. Thus, the optimal dynamic prices of private cars over time may increase, unchange or decrease, depending on the relationship of the changes of the status utility and the herd effect with the three factors above.According to the analysis above, taking advantage of the impact of the status utility and the herd effect, private cars firms can promote the selling. And for the state and local policies makers can develop the rational traffic congestion strategy, which not only can ease the urban traffic congestion effectively, and will not affect the development of the private cars industry disadvantageous.