Buying Decision Coordination and Monopoly Pricing of Network Goods

Pekka Sääskilahti*

*Corresponding author for this work

Research output: Contribution to journalArticleScientificpeer-review

Abstract

We analyze how uncertainty about consumers' preferences affects the pricing of a network device and the interaction usage it enables. A premium device price may give high hardware profits, but adoption will be low reducing the profits from interaction services. The firm internalizing this adjusts its hardware price downward, and prices as if it was getting the maximal interaction usage profits from the full network. Profits decrease in uncertainty, whereas consumer surplus increases in uncertainty, but only if the level of uncertainty is high. Bundling the device and services is profitable if uncertainty relates mostly to consumers' private information.

Original languageEnglish
Peer-reviewed scientific journalJournal of Economics and Management Strategy
Volume25
Issue number2
Pages (from-to)313-333
Number of pages21
ISSN1058-6407
DOIs
Publication statusPublished - 01.06.2016
MoE publication typeA1 Journal article - refereed

Keywords

  • 511 Economics

Fingerprint Dive into the research topics of 'Buying Decision Coordination and Monopoly Pricing of Network Goods'. Together they form a unique fingerprint.

  • Cite this