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.
|Peer-reviewed scientific journal||Journal of Economics and Management Strategy|
|Number of pages||21|
|Publication status||Published - 01.06.2016|
|MoE publication type||A1 Journal article - refereed|
- 511 Economics