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Optimal sales schemes for network goods

Alexei Parakhonyak and Nick Vikander

No WP BRP 41/EC/2013, HSE Working papers from National Research University Higher School of Economics

Abstract: This paper examines the optimal sequencing of sales in the presence of network externalities. A firm sells a good to a group of consumers whose payoff from buying is increasing in total quantity sold. The firm selects the order to serve consumers so as to maximize expected sales. It can serve all consumers simultaneously, serve them all sequentially, or employ any intermediate scheme. We show that the optimal sales scheme is purely sequential, where each consumer observes all previous sales before choosing whether to buy himself. A sequential scheme maximizes the amount of information available to consumers, allowing success to breed success. Failure can also breed failure, but this is made less likely by consumers’ desire to influence one another’s behavior. We show that when consumers differ in the weight they place on the network externality, the firm would like to serve consumers with lower weights first. Our results suggests that a firm launching a new product should first target independent-minded consumers who can serve as opinion leaders for those who follow.

Keywords: Product launch; Network externality; Sequencing of sales (search for similar items in EconPapers)
JEL-codes: M31 D42 D82 L12 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-com, nep-mic, nep-mkt and nep-net
Date: 2013
References: View references in EconPapers View complete reference list from CitEc
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Published in WP BRP Series: Economics / EC, December 2013, pages 1-27

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Persistent link: https://EconPapers.repec.org/RePEc:hig:wpaper:41/ec/2013

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