Analysis of pricing strategies for e-business companies providing information goods and services

  • Authors:

  • Kang Bae Lee;Sungyeol Yu;Seong Jun Kim

  • Affiliations:

  • Division of Management Information Science, College of Business Administration, Dong-A University, 840 Hadan2-Dong, Saha-Ku, Busan 604-714, Republic of Korea;School of Business Administration, Catholic University of Pusan, 9 Bugok3-Dong, Keumjeung-Ku, Busan 609-757, Republic of Korea;Department of Industrial Engineering, Kangnung National University, 120 Daehangno, Gangnung 210-702, Republic of Korea

  • Venue:
  • Computers and Industrial Engineering
  • Year:
  • 2006

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Abstract

In this paper, we introduce a mathematical model to analyze pricing and service quality strategies for e-business companies providing information services to customers. The basic strategy considered in this paper is that a monopolistic e-business company provides free services to try to earn a profit by developing premium goods or services to market created by their free goods or services. It is a kind of versioning strategy where lower quality versions of information goods are provided free. And a direct network effect was also considered. And we tried to find the profit maximizing strategies for monopolistic e-business companies. As a result, the optimal quality and price for the premium goods or services can be obtained at the same level of the intensity of the direct network effect. And the exact term related with the network externality is derived and insights are demonstrated through numerical explorations.