Effect of strategic approach in dynamic pricing for the network goods

 
PIIS042473880009218-8-1
DOI10.31857/S042473880009218-8
Publication type Article
Status Published
Authors
Occupation: Scientific concept adviser
Affiliation: CEMI RAS
Address: Moscow, Nakhimovky prospect 47
Occupation: Leading Researcher
Affiliation:
Laboratory of financial and industrial integration mechanisms
Central Economics and Mathematics Institute of Russian Academy of Science
Address: Nakhimovsky prospekt, 47
Journal nameEkonomika i matematicheskie metody
EditionVolume 56 Issue 2
Pages20-31
Abstract

Article is devoted to modeling and comparative analysis of the options of dynamic pricing in the markets of the network goods. The model of the duopoly market covers production of such goods and uses logistic functions for taking into account their specifics. Consequences of application of different strategies of dynamic pricing, Pareto optimum and Nash equilibrium parameters are assessed on the basis of numerical experiments on the model. Duopoly searches for price paths that maximize net present value over a long period of time are considered as strategic approach to dynamic pricing. It is shown that pricing aimed at consequent maximization of current profits provides competitors with lower benefit than even a rather “crude” version of strategic optimization of dynamic pricing, when the same ratio of price and current utility of the good remains throughout the entire price sequence. Formation of critical mass of buyers, which is inherent to the network goods, is much better taken into account in the case of strategic pricing by means of changing this ratio as the market for network goods develops. It is noted that coordinated behavior provides to duopolists higher net present values than competitive behavior in the Nash equilibrium.

Keywordsnetwork goods, dynamic pricing, logistic functions, duopoly, Pareto optimum, Nash equilibrium, computer experiment.
Received12.04.2020
Publication date11.06.2020
Number of characters28934
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