Optimal Sales Schemes for Network Goods

Parakhonyak, Alexei; Vikander, Nick

doi:10.1287/mnsc.2017.2972

Cited by 11 publications

(6 citation statements)

References 72 publications

Supporting

Mentioning

Contrasting

Order By: Relevance

“…Zhou and Chen (2018) examine the pricing decisions for this sequential problem. In an independent study, Parakhonyak and Vikander (2019) also discuss the benefit of sequential launch with payoff externalities without signaling.…”

Section: Literature Reviewmentioning

confidence: 99%

Optimal selling scheme in social networks: hierarchical signaling, sequential selling, and chain structure

Zhou

Liao

Chen

2023

Production and Operations Management

View full text Add to dashboard Cite

We study the optimal selling scheme when a seller sells a product/service with a positive consumption externality, and customers are uncertain about the product's/service's value. Because early adopters learn this value, we consider the customers' intrinsic signaling incentives and positive feedback effects. Allowing the seller to choose the sequence of customers' decisions (as an endogenous hierarchy) implies that signaling takes place in multiple rounds. To tackle this hierarchical signaling problem, we develop a novel dynamic-programming approach that yields analytical expressions of the equilibrium outcomes. The profit-maximizing structure turns out to be a chain in which the seller sells to the customers one by one. The sequential selling scheme is not only profitable for the seller but also beneficial to the society. The profit-maximizing pricing exhibits a cream-skimming property-decreasing prices along the sequence. The lack of seller's commitment is detrimental to the social welfare; nonetheless, the sequential selling still boosts up the seller's profit. When customers are allowed to freely disclose their quantity decisions to others, they willingly comply with the seller's plan of information transmissions. Despite the inherent value uncertainty, the optimal usage of information transmissions requires deliberate restricted access to information among customers. Our result also suggests some congruence between the profit and welfare maximization.

show abstract

Section: Literature Reviewmentioning

confidence: 99%

Optimal selling scheme in social networks: hierarchical signaling, sequential selling, and chain structure

Zhou

Liao

Chen

2023

Production and Operations Management

View full text Add to dashboard Cite

show abstract

“…When the consumer considers the same two products but this time on a platform that has been adopted by other users (i.e., it has an installed base greater than one), she may expect to derive some benefits from the product's social features. This is true even if she does not know the exact size of the product's user base, given that consumers often anticipate the size of a product's user base in the presence of network effects (e.g., Farrell & Saloner, 1986;Parakhonyak & Vikander, 2019;Schilling, 2003). Note that our stylized example holds even when we allow a product to offer any combination of standalone functionality and network functionality, so long as there is some (either perceived or actual) tradeoff between a firm's investments in standalone functionality and its investments in social features.…”

Section: The Mixed Effects Of Incorporating Social Features On Becomi...mentioning

confidence: 99%

Section: Hypothesesmentioning

confidence: 99%

“…Products that incorporate social features— and which also manage to attract a large user base —generate network effects (Aral & Walker, 2011; Dou, Niculescu, & Wu, 2013). Freemium's low barriers to adoption paired with strong network effects from social features can create a virtuous cycle resulting in a product's widespread diffusion, which may ultimately lead to a product becoming a “superstar” (Parakhonyak & Vikander, 2019; Shi, Zhang, & Srinivasan, 2019).…”

Section: Introductionmentioning

confidence: 99%

See 1 more Smart Citation

On top of the game? The double‐edged sword of incorporating social features into freemium products

Rietveld

Ploog

2021

Strategic Management Journal

View full text Add to dashboard Cite

Research Summary Freemium products require widespread diffusion for their success. One way to do this is by incorporating social features (e.g., multiplayer functionality, virtual collaboration, ridesharing), which can generate network effects and result in a product becoming a superstar. However, social features can be a double‐edged sword: When demand potential for freemium products is large, social features can significantly boost a product's appeal resulting in more adoption, more usage, and more in‐app purchases; but when demand potential is constrained, network effects might fall short and users may feel they are missing out on key aspects of the product. We test this dynamic on a sample of 9,700 digital games on Steam. Findings contribute to our understanding of network effects, freemium strategies, and superstar products in platform markets. Managerial Summary Freemium has become a popular business model among firms competing on digital platforms. Freemium products require widespread diffusion because most consumers do not pay for premium upgrades. One way to stimulate a product's diffusion is by incorporating social features (e.g., multiplayer functionality, virtual collaboration, ridesharing). Social features can boost a product's appeal resulting in more adoption, more usage, and more in‐app purchases. Our analysis of 9,700 digital PC games on Steam reveals that the efficacy of incorporating social features importantly depends on the number of users on the platform itself. Social features can help freemium products become a superstar when the platform's installed base is large, but they hinder a freemium product's success when the platform's installed base is small.

show abstract

“…for example, the buyers in I 1 are charged markups in G but offered discounts in G which is obtained from G by adding a link between 2 and 8 30. …”

mentioning

confidence: 99%

Bertrand Competition under Network Externalities

Aoyagi

2017

SSRN Journal

View full text Add to dashboard Cite

Two firms engage in price competition to attract buyers located on a network. The value of the good of either firm to any buyer depends on the number of neighbors on the network who adopt the same good. When the size of externalities increases linearly with the number of adoptions, we identify the set of price strategies that are consistent with an equilibrium in which one of the firms monopolizes the market. The set includes marginal cost pricing as well as bipartition pricing, which offers discounts to some buyers and charges markups to others. We show that marginal cost pricing fails to be an equilibrium under non-linear externalities but identify conditions for an equilibrium with bipartition pricing to be robust against perturbations in the externalities from linearity. The idea of bipartition pricing is then applied to the analysis of platform competition in a two-sided market under local and approximately linear externalities.

show abstract

Optimal Sales Schemes for Network Goods

Cited by 11 publications

References 72 publications

Optimal selling scheme in social networks: hierarchical signaling, sequential selling, and chain structure

Optimal selling scheme in social networks: hierarchical signaling, sequential selling, and chain structure

On top of the game? The double‐edged sword of incorporating social features into freemium products

Bertrand Competition under Network Externalities

Contact Info

Product

Resources

About