Dynamic Network-Based Discriminatory Pricing

G. E. Fruchter, R. C. Rao and M. Shi
Additional contact information
G. E. Fruchter: Bar-llan University
R. C. Rao: University of Texas at Dallas
M. Shi: University of Toronto

Journal of Optimization Theory and Applications, 2006, vol. 128, issue 3, No 6, 604 pages

Abstract: Abstract We study the dynamic pricing decisions for competitive network service providers. We assume that each competing firm follows a three-part pricing scheme, which consists of an ongoing membership fee, a usage fee for communications within the networks, and another usage fee for communications across the networks. The difference between the two usage fees is the network-based price discount that allows price discrimination. We study the firms problems as a differential game and establish the optimal pricing policy as a Nash equilibrium feedback strategy depending on only the network sizes (i.e., the number of subscribers). We compare the dynamic network-based discount with the static discount. In the special case of a uniform calling pattern, we find that the firm network-based dynamic discount is always lower than the static discount; we find also that the firm that has a larger network can offer a bigger discount. These results are useful particularly for managers. To get further insights into the dynamic pricing policies, we explore the case of symmetric competition using numerical simulation.

Keywords: Differential games; Nash equilibrium; price discrimination; dynamic pricing; competition; telecommunication service pricing (search for similar items in EconPapers)
Date: 2006
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Citations: View citations in EconPapers (2)

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DOI: 10.1007/s10957-006-9033-8

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