Research On Dynamic Pricing Strategies Of Digital Products Based On Network Externality

With the rapid development of information technology and the emerging of intellectual economy, internet and information technology has walk into all aspects of society. An increasing amount companies take a variety of marketing strategies to obtain competitive edges. Digital product, different from other products, has a unique cost structure. Besides, it has significant network externality. Digital product is affected by factors from both supply side and demand side, which is called network externality. Traditional pricing strategies are often static, which means the price will keep still for a while after being confirmed. And most of them are cost-oriented. For these products with network externality, traditional economic theories cannot be applied directly. Thus, it is the same with traditional pricing strategies.In the thesis, a monopolistic digital products manufacturer is set as the research object. A simulation was done to analyze the equilibrium results under the situation of different assumptions and sales order of high and low quality products. Details of the research are shown as follows.First, the distribution of consumer preference and different sales situations of a monopolistic digital products manufacturer are introduced through in-depth analysis of related literatures. The uniform distribution of consumer preference has defects and shortcomings. Therefore, a new piecewise linear non-uniform distribution of consumer preference is proposed to fix such problems. The linear evaluation function of network externality is also modified according to the compatibility of products with different qualities. Given the dynamic nature of pricing, a simulation model is designed to be analyzed.Second, according to the simulation model, a virtual economic market with ten thousand persons in twenty different situation is simulated with Matlab to do the experiments. The results of experiments give the optimal price, optimal sales volume of products with different qualities and maximize profits of the monopolistic digital products manufacturer. With the comparison of simulation results in twenty different situations, the impact to the optimal price, optimal sales volume and maximize profits from the distribution of consumer preference, network externality, dynamic nature of pricing and different sales situations is analyzed. Furthermore, four conclusions are summarized according to the comparison.Finally, the influence of network externality to the pricing strategies is analyzed with the survey of software magnates in different market segments, such as Adobe and Microsoft. Besides, three other pricing strategies adopted by them are introduced and summarized in the end.