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Optimal pricing policy in the presence of positive and negative network effects

Author

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  • Nako Iwaji

    (Kanagawa University)

  • Kimitoshi Sato

    (Kanagawa University)

Abstract

We propose an optimal pricing model for products with both positive and negative network effects. A closed-form expression of the optimal pricing policy is derived under the assumption that the demand function is linear. When there are two customer types with different attitudes towards congestion, the monotonicity of the optimal price differs according to the price sensitivity of each customer type. We show that even if the number of customers who are averse to congestion increases, if the negative-type price sensitivity is low and the positive network effect is weak, increasing the optimal price will increase total profit.

Suggested Citation

  • Nako Iwaji & Kimitoshi Sato, 2024. "Optimal pricing policy in the presence of positive and negative network effects," Journal of Revenue and Pricing Management, Palgrave Macmillan, vol. 23(2), pages 112-118, April.
    • Handle: RePEc:pal:jorapm:v:23:y:2024:i:2:d:10.1057_s41272-023-00437-7
    DOI: 10.1057/s41272-023-00437-7
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    References listed on IDEAS

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    1. Ruxian Wang & Zizhuo Wang, 2017. "Consumer Choice Models with Endogenous Network Effects," Management Science, INFORMS, vol. 63(11), pages 3944-3960, November.
    2. 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.
    3. Chenhao Du & William L. Cooper & Zizhuo Wang, 2016. "Optimal Pricing for a Multinomial Logit Choice Model with Network Effects," Operations Research, INFORMS, vol. 64(2), pages 441-455, April.
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    5. 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.
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