Strategic pricing, resource allocation and infrastructure in electronic commerce

In this thesis we identify and obtain structural results for two different problems that are motivated by electronic commerce infrastructure and bundling of information goods. Strategic implications of implementing a priority pricing scheme in an ATM-like network owned by a single firm is the subject of the first study. Network structure consists of a single link modeled as an Mx/D/1 queue with non-preemptive head-of-the-line priority service. The network manager's motive is to maximize the difference between revenue generated and the delay (penalty) cost. We obtain structural results for the two priority case both in the short and in the long run. In equilibrium, it is found that the network manager maximizes the price spread between the two priority class services. We show that when the capacity is also considered as a decision variable, simultaneous capacity and price setting is equivalent to choosing the capacity first and then the prices. Closed form solutions in both cases are provided. The second part of the thesis addresses a vital issue in the provision of bundled information goods. The problem motivation comes from the business practice of forming partnerships to provide bundled products that involve only one of the parties' effort for upgrade. Component based software products exhibit such characteristics. We find that in a duopoly market, upgrade quality may be used to prevent a possible price war hence benefitting both firms by keeping positive revenue flow. However, first period quality level may be deliberately chosen to be low while second period bundle prices are chosen to be high.