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

Author

Listed:
  • 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.
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