Optimal pricing policy in the presence of positive and negative network effects

Nako Iwaji and Kimitoshi Sato ()
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Nako Iwaji: Kanagawa University
Kimitoshi Sato: Kanagawa University

Journal of Revenue and Pricing Management, 2024, vol. 23, issue 2, No 5, 112-118

Abstract: Abstract We propose an optimal pricing model for products with both positive and negative network effects. A closed-form expression of the optimal pricing policy is derived under the assumption that the demand function is linear. When there are two customer types with different attitudes towards congestion, the monotonicity of the optimal price differs according to the price sensitivity of each customer type. We show that even if the number of customers who are averse to congestion increases, if the negative-type price sensitivity is low and the positive network effect is weak, increasing the optimal price will increase total profit.

Keywords: Pricing; Network effect; Revenue management (search for similar items in EconPapers)
Date: 2024
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DOI: 10.1057/s41272-023-00437-7

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