Internet Service Pricing Strategy Considering Network Externalities And Customer Loyalty

With the advent of the Internet era and the rapid development of the Internet industry, how to formulate a reasonable price mechanism on the basis of market supply and demand, consumer characteristics, analysis of competitors and other factors is one of the key policy issues of network service control and optimization.Internet services as a typical ICT industry, its market has technical and economic characteristics of the network externalities, meanwhile, the customer loyalty behavior of network users also has a significant impact on pricing strategy of ISPs.Therefore, the impact of network externalities and customer loyalty behavior characteristics on competitive strategy of ISPs in network services market has a certain theoretical and practical significance.This paper introduced network externalities and customer loyalty tendency to the consumer utility function, thus characterize the impact of network subscribers and user behavior characteristics of ISPs pricing strategy and got ISPs price competition strategy under different game situations. Secondly, the paper analyzed the game equilibrium and ISPs’earnings under different circumstances.Finally, the article discussed the network externalities and customer loyalty tendency for social welfare level of the whole network services market mechanism.The results show that the ISP with the larger initial market share can always get a competitive advantage under the influence of network externalities. In the case of network users do not have a tendency to customer loyalty, so that it can develop higher product prices and access to higher profits.This advantage increases is proportional to the intensity of network externalities at the same time.On the other hand, the competitive advantage of the dominant ISP will be further increased if it gets the customer loyalty tendency, but the level of social welfare will be decline at the same time. The expected profit will be increased and competitive of network services market will be enhanced when the inferior ISP gets the tendency of customer loyalty, while total social welfare will be increased.