Optimal Sales Schemes for Network Goods

Alexei Parakhonyak and Nick Vikander

Management Science, 2019, vol. 65, issue 2, 819-841

Abstract: This paper considers a monopolist’s product-launch strategy in the presence of network effects, focusing on how to exploit these effects to the maximum possible extent. In our formal framework, the firm sets a price for its product and chooses a sales scheme, which effectively determines how consumers can learn from each other about the product’s popularity. Our results on the profitability of different schemes provide insights on a variety of managerial issues that are of practical relevance for product launch. Specifically, to best exploit network effects, our results suggest releasing preorder and sales information to consumers. They also suggest taking a sequential approach to multimarket product launch, launching first in smaller markets before larger ones. Moreover, they identify possible benefits of promoting prerelease consumer communication, and they support the idea of targeting independent-minded consumers, so they can serve as opinion leaders for those who follow.

Keywords: product launch; network effects; sequencing of sales (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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https://doi.org/10.1287/mnsc.2017.2972 (application/pdf)

Related works:
Working Paper: Optimal sales schemes for network goods (2013)
Working Paper: Optimal Sales Schemes for Network Goods (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:inm:ormnsc:v:65:y:2019:i:2:p:819-841

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