Selling or leasing? Dynamic pricing of software with upgrades

Jia, Kunhao; Liao, Xiuwu; Feng, Juan

doi:10.1016/j.ejor.2017.10.063

Cited by 40 publications

(24 citation statements)

References 52 publications

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“…However, one distinct feature of these markets lie in that they don't rely on revenues from advertisements as the digital music market. Therefore, previous literature usually focuses on deterioration of cars (Desai and Purohit 1998), software's upgrade (Jia et al 2018), customization (Li et al 2018), or eBook readers re-lending options (Chen and King 2017) when examining the subscription model of software and eBook. We analyze how revenues from advertisements impact the music provider's choice of pricing models.…”

Section: Managerial Implicationsmentioning

confidence: 99%

Optimal Pricing Model of Digital Music: Subscription, Ownership or Mixed?

Li¹,

Luo

Qiu

et al. 2020

Production and Operations Management

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Traditionally, consumers purchase physical music (often in the form of CDs or cassettes) from local retailers. With the development of Internet technology, the market share of digital music has grown rapidly in recent years. Unlike physical music, digital music is provided by several emerging digital music providers through the Internet to consumers. Pricing models of digital music are also drastically different from those of physical music. In this study, we identify three common schemes for selling digital music: ownership, subscription and mixed pricing models. Under the ownership model, consumers purchase and download their preferred songs and enjoy music using their local devices. Under the subscription model, music is provided through an online streaming service. The mixed pricing model is a combination of the previous two. Our paper explores and compares the three pricing models. Through a stylized model, we find that several factors, including the advertisement revenue rate and consumers’ reservation value for the music service, have crucial effects on the comparison of the three pricing models.

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Section: Managerial Implicationsmentioning

confidence: 99%

Optimal Pricing Model of Digital Music: Subscription, Ownership or Mixed?

Li¹,

Luo

Qiu

et al. 2020

Production and Operations Management

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show abstract

“…More recently, Jia et al. (2018) compared selling vs. leasing in a two‐period monopoly model for software products with upgrades. In contrast with these papers, we consider a setting in which the selling and rental options may coexist.…”

Section: Literature Reviewmentioning

confidence: 99%

Pricing Joint Sales and Rentals: When are Purchase Conversion Discounts Optimal?

Jalili

Pangburn

2020

Production and Operations Management

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P roduct sales and rentals often occur in parallel, allowing customers to choose their preferred option. In settings where consumers face significant value uncertainty, rentals also provide a mechanism for consumers to discover whether they like a product. For some products, such as movies and books, the rental option may yield a significant proportion of the utility associated with ownership. The convenience of renting products in digital forms (e.g., e-books) makes the managerial challenge of jointly pricing rentals and sales increasingly relevant. Rental and sales prices are interdependent not only because consumers can choose between the two options, but also because a customer may rent before purchasing. Given these considerations, and allowing for consumer uncertainty, we analyze the optimal joint pricing of product rentals and sales. We show that when consumers have a relatively high probability of liking a product, and will experience a significant drop in their post-rental residual utility, then the practice of allowing a portion of the rental price to apply to a future purchase is optimal.

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“…On the contrary, intertemporal pricing in the presence of consumption externality has been extensively investigated in the economics and marketing literature. In addition to Amaldoss and Jain (2008,2015) and , many studies, such as those of Rao and Schaefer (2013), Yin and Tang (2014), Jia et al (2018), Zhou et al (2018), and Chen and Jia (2020) analyze intertemporal pricing by taking into account consumption externality due to consumer bias in evaluating a product. However, all these studies analytically explore two-period models for durable goods to obtain insights.…”

Section: Dynamic Pricing In the Presence Of Consumption Externalitymentioning

confidence: 99%

Dynamic production and pricing decisions in the presence of the snob effect

Sogo

Matsubayashi

2021

Int Trans Operational Res

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This study analyzes the production and pricing strategy of a monopoly firm in the presence of the snob effect, whereby consumers value a product more when its availability is lower. Real-world firms often intentionally cause the snob effect by strategically reducing supply quantities or even causing shortages. This observation suggests the existence of a trade-off between utilizing the snob effect and avoiding opportunity costs. We consider a general multiperiod model in which a monopoly firm determines the dynamic paths of price and sales quantity; although consumers are not forward looking, they evaluate past stockouts with a discount factor. We find that the optimal dynamic paths of the price and output level vary depending on the degree of consumer sensitivity to stockouts, the consumer's discount factor on past shortage, and the firm's discount factor on future profit. Nevertheless, the total profit monotonically increases with the degree of consumer sensitivity to stockouts.

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Selling or leasing? Dynamic pricing of software with upgrades

Cited by 40 publications

References 52 publications

Optimal Pricing Model of Digital Music: Subscription, Ownership or Mixed?

Optimal Pricing Model of Digital Music: Subscription, Ownership or Mixed?

Pricing Joint Sales and Rentals: When are Purchase Conversion Discounts Optimal?

Dynamic production and pricing decisions in the presence of the snob effect

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