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Optimal Pricing Strategy For The Entrant With New Information Goods

Posted on:2017-05-04Degree:MasterType:Thesis
Country:ChinaCandidate:X T LiFull Text:PDF
GTID:2359330515465025Subject:Management Science and Engineering
Abstract/Summary:PDF Full Text Request
With the development of Internet,information goods can be seen everywhere in our lives,therefore pricing strategies for information goods play an increasingly important role in the economic development.Focusing on information goods with positive network externalities,a pricing game model involving an incumbent and an entrant is developed in this thesis.By considering the impacts of network externalities and switching cost on new product entry,this thesis investigates optimal pricing strategies for the incumbent and the entrant,and analyzes their maximum profits in the market equilibrium.The later entrant enters an existing market with free base product and paid add-on competition strategy to cannibalize the incumbent’s market share.Optimal pricing strategy of the later entrant is considered in two cases.In the first case,the incumbent takes the free base product and paid add-on pricing strategy.Results show that the market equilibrium exists when both firms take this pricing strategy.When the market comes into the equilibrium,the incumbent can lower the optimal price of the add-on to extend the market share,and this thesis further find the necessary condition under which the later entrant can enter the market.Only when network intensity is weak and switching cost is small,would the entrant enter the market with the free base product.However,if network intensity is too strong or switching cost is too large,the entrant would not enter the market with the free strategy.Instead,the entrant would provide a paid-for product to consumers,or not enter the market at all.In the second case,the incumbent only provides a single paid-for product in the market while the later entrant takes the free base product and paid add-on pricing strategy.Market status is discussed when the entrant designs the product at three different quality levels.Results show that the market equilibrium does not exist when the entrant’s entry with a homogeneous product.However,the only possible market structures exist separately when the entrant enters the market with high-end and low-end encroachment,respectively.At the same time,this thesis analyzes the impact of switching cost on the pricing strategy,firms’ profits,consumer surplus and social welfare,and makes the numerical analysis for the results.
Keywords/Search Tags:New product entry, free strategy, the add-on pricing, positive network externalities, switching cost
PDF Full Text Request
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