IDEAS home Printed from https://ideas.repec.org/a/inm/oropre/v34y1986i3p384-394.html
   My bibliography  Save this article

Dynamic Nonlinear Pricing in Networks with Interdependent Demand

Author

Listed:
  • Anirudh Dhebar

    (Harvard University, Boston, Massachusetts)

  • Shmuel S. Oren

    (University of California, Berkeley, California)

Abstract

We consider the pricing decision for a new product whose consumption value increases as the network of adopters expands. This demand interdependence is a characteristic feature of telecommunications networks. The paper analyzes the case of a single supplier offering the product to a heterogeneous population. Consumers decide on network access and consumption quantity. The pricing decision consists of choosing a pricing schedule (over the dimensions of quantity and time) that maximizes the present value of a weighted sum of total surplus and producer profits, subject to the dynamics of market growth. We find that the decision can be decoupled into two nested optimization problems: (a) given some market size, what should the optimal nonlinear price schedule be? and (b) how should the price schedule be changed optimally over time? This separation enables us to solve the pricing problem. Explicit consideration of the dynamics, the discounting of future surpluses, and the extent of market growth anticipation affect not only the price and network size trajectories, but also their steady-state equilibrium values.

Suggested Citation

  • Anirudh Dhebar & Shmuel S. Oren, 1986. "Dynamic Nonlinear Pricing in Networks with Interdependent Demand," Operations Research, INFORMS, vol. 34(3), pages 384-394, June.
    • Handle: RePEc:inm:oropre:v:34:y:1986:i:3:p:384-394
    DOI: 10.1287/opre.34.3.384
    as

    Download full text from publisher

    File URL: http://dx.doi.org/10.1287/opre.34.3.384
    Download Restriction: no
    File URL: https://libkey.io/10.1287/opre.34.3.384?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Nan Yang & Renyu Zhang, 2022. "Dynamic pricing and inventory management in the presence of online reviews," Production and Operations Management, Production and Operations Management Society, vol. 31(8), pages 3180-3197, August.
    2. Roy Radner & Ami Radunskaya & Arun Sundararajan, 2010. "Dynamic Pricing of Network Goods with Boundedly Rational Consumers," Working Papers 10-13, New York University, Leonard N. Stern School of Business, Department of Economics.
    3. Fatemeh Nosrat & William L. Cooper & Zizhuo Wang, 2021. "Pricing for a product with network effects and mixed logit demand," Naval Research Logistics (NRL), John Wiley & Sons, vol. 68(2), pages 159-182, March.
    4. Yuri Levin & Mikhail Nediak & Andrei Bazhanov, 2014. "Quantity Premiums and Discounts in Dynamic Pricing," Operations Research, INFORMS, vol. 62(4), pages 846-863, August.
    5. Yifan Dou & Marius F. Niculescu & D. J. Wu, 2013. "Engineering Optimal Network Effects via Social Media Features and Seeding in Markets for Digital Goods and Services," Information Systems Research, INFORMS, vol. 24(1), pages 164-185, March.
    6. Marius F. Niculescu & Hyoduk Shin & Seungjin Whang, 2012. "Underlying Consumer Heterogeneity in Markets for Subscription-Based IT Services with Network Effects," Information Systems Research, INFORMS, vol. 23(4), pages 1322-1341, December.
    7. Mesak, Hani I. & Bari, Abdullahel & Babin, Barry J. & Birou, Laura M. & Jurkus, Anthony, 2011. "Optimum advertising policy over time for subscriber service innovations in the presence of service cost learning and customers' disadoption," European Journal of Operational Research, Elsevier, vol. 211(3), pages 642-649, June.
    8. Ming Hu & Zizhuo Wang & Yinbo Feng, 2020. "Information Disclosure and Pricing Policies for Sales of Network Goods," Operations Research, INFORMS, vol. 68(4), pages 1162-1177, July.
    9. Zhen Lian & Garrett van Ryzin, 2021. "Optimal Growth in Two-Sided Markets," Management Science, INFORMS, vol. 67(11), pages 6862-6879, November.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:inm:oropre:v:34:y:1986:i:3:p:384-394. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Chris Asher (email available below). General contact details of provider: https://edirc.repec.org/data/inforea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.