The Market Strategy Of Retailers Under Horizontal Differentiation And Network Externality

With the development of network economy, more kinds of products have the characteristicsof network externality. The purchase behavior of consumers influenced by network externalityhas a more significant effect on the demand function of products. Therefore，retailers have totake into account the influence of network externality, and on its basis to make businessdecisions. By the evolutionary game theory, the paper builds an asymmetric two-populationevolutionary game model under the network externality environment, and discusses retailerswith bounded rationality, in the long-term market competition, how to choose the marketstrategy which is most suitable for their survival. The paper mainly discusses two problems.Firstly, in the face of profit maximization strategy and revenue maximization strategy, whichmarket strategy will retailers choose? Secondly, in the face of sales strategy and price strategy,which market strategy will retailers choose?For the problem of choosing profit maximization strategy or revenue maximization strategy,firstly, the paper establishes the indirect evolutionary game model of the asymmetric doubleretailer group. Secondly, when manufacturers respectively produce substitutes and complements,the paper discusses the evolutionary stable strategy (ESS) of dynamic system under differentnetwork externality and the market scale, and analyzes how various parameters, such as themarket scale, the network externality and the product of alternative or complementary character,affect mixed equilibrium. Again, considering a hybrid profit-and-revenue maximization model oftwo populations in which a retailer can arbitrarily compromise the two strategies, the paperanalyzes retailers’ strategy choice and the influence of the market scale upon retailers’ choice.Lastly, through a numerical example, the paper verifies and analyzes the theoretical resultsobtained in the former sections.For the problem of choosing sales strategy or price strategy, firstly, the paper builds theevolutionary game model in which retailers choose different marketing strategy. Secondly, byrespectively discussing the stability of dynamic system in both cases of manufacturers producingsubstitutes and complements, it is showed that there are two ESS in the system,(sales strategy, sales strategy) and (price strategy, price strategy). With this basis, the paper then analyzes theinfluence of the market scale, the network externality, and the product of alternative orcomplementary character upon the basin of attraction of ESS. By the analysis, it is found that thedynamic system will evolve in different directions when the network externality and the productof alternative or complementary character vary. Lastly, through a numerical example, the paperverifies and analyzes the theoretical results obtained in the former sections.