Pricing strategy for products with consumption synergy

Zhewei Xi, Guoqiang Lou and Youze Lang

Applied Economics Letters, 2025, vol. 32, issue 3, 351-356

Abstract: The Internet of Things (IoT) technology has established interoperation functions between devices in different categories, creating extra value for consumers with a certain set of devices. We develop a two-period model to characterize pricing strategies for firms with such interconnected products, which illustrates pricing externality for firms in originally unrelated markets, due to synergy value from the interoperation function. Firms use dynamic pricing or behaviour-based pricing discrimination to spontaneously expand the partner’s demand for interconnected products. Dynamic pricing yields a higher profit for the owner of interconnection technology than behaviour-based pricing discrimination. Furthermore, both pricing strategies can improve social welfare under a sufficiently high level of consumption synergy, as firms may appeal to more users for interconnected products.

Date: 2025
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DOI: 10.1080/13504851.2023.2269626

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