Pricing model in the market for network goods in terms of duopolistic competition
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Pricing model in the market for network goods in terms of duopolistic competition
Annotation
PII
S042473880000002-1-1
Publication type
Article
Status
Published
Authors
Victor Dementiev 
Occupation: Corresponding Member of the Russian Academy of Sciences
Affiliation: RAS
Address: Russian Federation
Elena Ustyuzhanina
Occupation: Chief Researcher
Affiliation: CEMI RAS
Address: Russian Federation
Sergey Evsyukov
Occupation: Senior Researcher
Affiliation: CEMI RAS
Address: Russian Federation
Pages
26-42
Abstract
The article is devoted to analyzing peculiarities of pricing in the markets for network goods. Such markets are usually oligopolies. This is due to the double economies of scale: when the size of the network increases, the consumer value of such a good rises whereas cost per unit falls. As a result, the singularity of pricing in the market for network goods is the interdependence of prices, demand, the achieved size of a network and consumer values. On the basis of the model of a duopoly, we consider the distribution of the effect of the output of new network goods between generator and imitator. Generator is an agent, who offers to the market a fundamentally new product, imitator is an agent, who may quickly reproduce innovation. The peculiarities of the proposed model include taking two types of investment (direct and precautionary) as well as the scale of the consumer value into consideration. The dynamic of changes in the value of a good is a logistic function where the dependent variable is the number of consumers (instead of time). Generator has to take into account the threat of entering the market imitator, since the outcome time of the imitator affect the amount and distribution of total benefit. That is why generator is beneficial at the stage of formation of network to set low prices for products. The low price in the initial period let to increase quickly the growing demand for a network good. The lower this price in the initial period, the sooner it is possible to increase the growing demand for a network good. This may mean that the imitator will fail to receive a large share of the benefits.
Keywords
network goods, pricing, duopoly, sunk costs, indirect costs, generator, imitator
Received
13.11.2018
Date of publication
14.11.2018
Number of purchasers
6
Views
686
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0.0 (0 votes)
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