Unobserved preferences and dynamic platform pricing under positive network externality

Hannu Huuki () and Rauli Svento
Additional contact information
Hannu Huuki: University of Oulu
Rauli Svento: University of Oulu

Netnomics, 2020, vol. 21, issue 1, 37-58

Abstract: Abstract We study the dynamic optimization of platform pricing in industries with positive direct network externalities. The utility of the network for the consumer is modeled as a function of three components. Platform price and participation rate affect the consumer’s decision to join the platform. The platform operator is assumed to know the consumer’s sensitivities with respect to these components. In addition, the consumer’s utility is a function of other attributes, such as network privacy policies and environmental effects of the service. We assume that the distribution of these unobserved preferences in the potential customer base is known to the platform operator. We show analytically how the unobserved preferences affect the dynamic platform price design. Both static and rational expectations with respect to the platform participation are presented. We simulate an electricity market demand side management service application and show that the platform operator sets low prices in the launch phase. The platform operator can set higher launching prices if it can affect customers’ preferences, expectations or adjustment friction.

Keywords: Dynamic pricing; Network externality; Unobserved preferences; Electricity market; Demand side management (search for similar items in EconPapers)
JEL-codes: C61 D85 L11 L14 Q41 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://link.springer.com/10.1007/s11066-020-09140-w Abstract (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:kap:netnom:v:21:y:2020:i:1:d:10.1007_s11066-020-09140-w

Ordering information: This journal article can be ordered from
http://www.springer. ... ry/journal/11066/PS2

DOI: 10.1007/s11066-020-09140-w

Access Statistics for this article

Netnomics is currently edited by Stefan Voß

More articles in Netnomics from Springer
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().