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Dynamic pricing for online information services considering service duration and quality level

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  • Lin, Xuxun
  • Wang, Haiyan

Abstract

Although online information services have significant advantages compared to traditional services in terms of information delivery, service efficiency, and customer convenience, they lack effective pricing strategies. In this research, we analyze customer behavior using an optimal control model, and propose a dynamic pricing mechanism for a newly developed online information service. In particular, we study the influence of user feedback, service duration, and service quality level on optimal decisions of the service provider (SP). First, we derive the optimal pricing, the free information referral rate, and the number of service pricing periods for different combinations of service quality levels and service durations. Second, we discuss the necessity and duration of the “free-charge” period. Third, we find that although higher-quality service with a longer duration can lead to higher profit and consumer surplus, it entails larger preliminary capital investment. Furthermore, in view of the maximum average profit, we discuss the optimal service duration and service quality level. Based on this, we provide managerial suggestions for the SP to choose an appropriate service duration and service quality level. Finally, we present a practically-applicable method for the SP to determine the service price as well as its duration by estimating the number of interested customers. Our findings enable the SP to determine the optimal strategies for its services in real business. Moreover, our results can be extended to similar online applications, thereby widening the scope of our research and providing avenues for further studies.

Suggested Citation

  • Lin, Xuxun & Wang, Haiyan, 2022. "Dynamic pricing for online information services considering service duration and quality level," Omega, Elsevier, vol. 109(C).
    • Handle: RePEc:eee:jomega:v:109:y:2022:i:c:s0305048322000020
    DOI: 10.1016/j.omega.2022.102593
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