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The importance of a strategic approach to pricing in markets for network goods

Author

Listed:
  • Dementiev, V.

    (Central Economics and Mathematics Institute, Russian Academy of Sciences, Moscow, Russia
    Plekhanov Russian University of Economics, Moscow, Russia)

  • Evsukov, S.

    (Central Economics and Mathematics Institute, Russian Academy of Sciences, Moscow, Russia
    Plekhanov Russian University of Economics, Moscow, Russia)

  • Ustyuzhanina, E.

    (Plekhanov Russian University of Economics, Moscow, Russia
    Central Economics and Mathematics Institute, Russian Academy of Sciences, Moscow, Russia)

Abstract

The paper is dedicated to dynamic pricing strategy in duopoly markets for network goods. Duopoly members are regarded as strategy-oriented agents that are willing to sacrifice their current income for the increase in the total outcome (net present value). The results of the study prove that in duopoly markets for network goods there exist equilibrium dynamic pricing strategies that have the following features: a) both suppliers get the largest possible total net present value; b) if one of the suppliers pursues the equilibrium strategy while the other one does not, the later makes losses compared to the income provided by the equilibrium strategy. The strategy of moderately high comparable prices is considered to be the most advantageous one since it allows to reach the critical mass of users rather quickly as well as to bring similar gains to both players. If duopoly members pursue pricing strategies that are different from each other, their current results also differ. But when the loser at an intermediate stage tries to adopt the pricing strategy of the competitor, this can lead him to new losses. Such consequences prove the importance of a strategic approach to pricing in markets for network goods.

Suggested Citation

  • Dementiev, V. & Evsukov, S. & Ustyuzhanina, E., 2020. "The importance of a strategic approach to pricing in markets for network goods," Journal of the New Economic Association, New Economic Association, vol. 46(2), pages 57-71.
    • Handle: RePEc:nea:journl:y:2020:i:46:p:57-71
    DOI: 10.31737/2221-2264-2020-46-2-3
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    References listed on IDEAS

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    More about this item

    Keywords

    network goods; duopoly; dynamic pricing; dynamic equilibrium; price competition;
    All these keywords.

    JEL classification:

    • C6 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling
    • D4 - Microeconomics - - Market Structure, Pricing, and Design

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