Advanced Search
MyIDEAS: Login to save this paper or follow this series

Optimal Sales Schemes for Network Goods

Contents:

Author Info

  • Alexei Parakhonyak

    (National Research University Higher School of Economics)

  • Nick Vikander

    (Department of Economics, Copenhagen University)

Abstract

This paper examines the optimal sequencing of sales in the presence of network externalities. A firm sells a good to a group of consumers whose payoff from buying is increasing in total quantity sold. The firm selects the order to serve consumers so as to maximize expected sales. It can serve all consumers simultaneously, serve them all sequentially, or employ any intermediate scheme. We show that the optimal sales scheme is purely sequential, where each consumer observes all previous sales before choosing whether to buy himself. A sequential scheme maximizes the amount of information available to consumers, allowing success to breed success. Failure can also breed failure, but this is made less likely by consumers’ desire to influence one another’s behavior. We show that when consumers differ in the weight they place on the network externality, the firm would like to serve consumers with lower weights first. Our results suggests that a firm launching a new product should first target independent-minded consumers who can serve as opinion leaders for those who follow.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.econ.ku.dk/english/research/publications/wp/dp_2013/1311.pdf
Download Restriction: no

Bibliographic Info

Paper provided by University of Copenhagen. Department of Economics in its series Discussion Papers with number 13-11.

as in new window
Length: 25 pages
Date of creation: 01 Nov 2013
Date of revision:
Handle: RePEc:kud:kuiedp:1311

Contact details of provider:
Postal: Øster Farimagsgade 5, Building 26, DK-1353 Copenhagen K., Denmark
Phone: (+45) 35 32 30 10
Fax: +45 35 32 30 00
Email:
Web page: http://www.econ.ku.dk
More information through EDIRC

Related research

Keywords: Product launch; Network externality; Sequencing of sales;

Other versions of this item:

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Subir Bose & Gerhard Orosel & Marco Ottaviani & Lise Vesterlund, 2008. "Monopoly pricing in the binary herding model," Economic Theory, Springer, Springer, vol. 37(2), pages 203-241, November.
  2. Ochs, Jack & Park, In-Uck, 2010. "Overcoming the coordination problem: Dynamic formation of networks," Journal of Economic Theory, Elsevier, Elsevier, vol. 145(2), pages 689-720, March.
  3. Joseph Farrell & Garth Saloner, 1985. "Standardization, Compatibility, and Innovation," RAND Journal of Economics, The RAND Corporation, vol. 16(1), pages 70-83, Spring.
  4. Masaki Aoyagi, 2005. "Optimal Sales Schemes against Interdependent Buyers," ISER Discussion Paper, Institute of Social and Economic Research, Osaka University 0645, Institute of Social and Economic Research, Osaka University.
  5. Subir Bose & Gerhard Orosel & Marco Ottaviani & Lise Vesterlund, 2006. "Dynamic monopoly pricing and herding," RAND Journal of Economics, RAND Corporation, vol. 37(4), pages 910-928, December.
  6. David Gill & Daniel Sgroi, 2005. "Sequential Decisions with Tests," Economics Series Working Papers 242, University of Oxford, Department of Economics.
  7. Bose, Subir & Orosel, Gerhard O & Ottaviani, Marco & Vesterlund, Lise, 2005. "Dynamic Monopoly Pricing and Herding," CEPR Discussion Papers, C.E.P.R. Discussion Papers 5003, C.E.P.R. Discussion Papers.
  8. Jinhong Xie & Marvin Sirbu, 1995. "Price Competition and Compatibility in the Presence of Positive Demand Externalities," Management Science, INFORMS, INFORMS, vol. 41(5), pages 909-926, May.
  9. Shlomo Kalish, 1985. "A New Product Adoption Model with Price, Advertising, and Uncertainty," Management Science, INFORMS, INFORMS, vol. 31(12), pages 1569-1585, December.
  10. Katz, Michael L & Shapiro, Carl, 1985. "Network Externalities, Competition, and Compatibility," American Economic Review, American Economic Association, American Economic Association, vol. 75(3), pages 424-40, June.
  11. Heski Bar-Isaac, 2003. "Reputation and Survival: Learning in a Dynamic Signalling Model," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 70(2), pages 231-251, 04.
  12. Gill, David & Sgroi, Daniel, 2010. "The optimal choice of pre-launch reviewer," Discussion Paper Series In Economics And Econometrics 1017, Economics Division, School of Social Sciences, University of Southampton.
  13. Cabral, Luis M. B. & Salant, David J. & Woroch, Glenn A., 1999. "Monopoly pricing with network externalities," International Journal of Industrial Organization, Elsevier, Elsevier, vol. 17(2), pages 199-214, February.
  14. Marco Ottaviani, 2000. "The Value of Public Information in Monopoly," Econometric Society World Congress 2000 Contributed Papers, Econometric Society 1479, Econometric Society.
  15. Gale, Douglas, 1998. "Monotone Games with Positive Spillovers," Working Papers, C.V. Starr Center for Applied Economics, New York University 98-34, C.V. Starr Center for Applied Economics, New York University.
  16. Ting Liu & Pasquale Schiraldi, 2012. "New product launch: herd seeking or herd preventing?," Economic Theory, Springer, Springer, vol. 51(3), pages 627-648, November.
  17. Anirudh Dhebar & Shmuel S. Oren, 1985. "Optimal Dynamic Pricing For Expanding Networks," Marketing Science, INFORMS, INFORMS, vol. 4(4), pages 336-351.
  18. Sgroi, Daniel, 2002. "Optimizing Information in the Herd: Guinea Pigs, Profits, and Welfare," Games and Economic Behavior, Elsevier, Elsevier, vol. 39(1), pages 137-166, April.
  19. repec:rje:randje:v:37:y:2006:i:4:p:910-928 is not listed on IDEAS
Full references (including those not matched with items on IDEAS)

Citations

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:kud:kuiedp:1311. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Thomas Hoffmann).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.