The Research On Free Pricing Of Network Information Goods

Since 1990s, Network Economy has grown into the mainstream of the Economy, and it has a profound impact on lots of aspects of the Economy. As the manifestations of the Network Economy, the market mechanism and price mechanism of network information goods are special, compared to Traditional Economy.This paper analyzes previous literatures about technical characteristics, competitive strategy and welfare of Network information goods. We found that the previous study focused on discrimination pricing. Because of the different technical characteristics, Network information goods'pricing is different from traditional goods.This paper first analyzes network information goods'technical characteristics. The first characteristic is network externalities, making the number of users and network size are much more important than price. Secondly, it is experience goods which results to price dilemma. Thirdly, it has special cost structure which is zero marginal cost and high fixed-cost. Manufacturers have to make profit by different pricing, from marginal cost pricing to consumer will-pricing. Fourthly, the cost of product differentiation is extremely small, so that manufactures can easily supply different products.These characters have a profound impaction on the pricing strategy. Network externalities demands manufactures getting the lowest number of users, so getting and sustaining number of users and network size becomes a primary issue. Special cost structure qualifies manufactures to enlarge network size limitlessly, but manufactures cannot get profit directly because it is experience goods.There are two sources to make profit. The first comes from direct profit of the product, which relates to consumer willing, and the second comes from indirect profit which relates to the number of users. So pricing strategy of Network information goods has to solve two problems, which are getting a large number of users and distinguishing consumer's willing. Free pricing can attract consumers to experience to get more numbers of users and larger network size. On this base, manufactures make profit. Small cost of product differentiation is the technical condition.At last, the paper analyzes welfare of free pricing. Consumers can consume freely, and manufactures can distinguish consumers' willing to get the maximization of profits indirectly. To the society, free pricing improves the overall efficiency and promotes technological progress.