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

Victor Dementiev, S. Evsukov and E. Ustyuzhanina
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S. Evsukov: Central Economics and Mathematics Institute, Russian Academy of Sciences, Moscow, Russia
E. Ustyuzhanina: Plekhanov Russian University of Economics, Moscow, Russia

Journal of the New Economic Association, 2020, vol. 46, issue 2, 57-71

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.

Keywords: network goods; duopoly; dynamic pricing; dynamic equilibrium; price competition (search for similar items in EconPapers)
JEL-codes: C6 D4 (search for similar items in EconPapers)
Date: 2020
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Persistent link: https://EconPapers.repec.org/RePEc:nea:journl:y:2020:i:46:p:57-71

DOI: 10.31737/2221-2264-2020-46-2-3

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