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- Title
Dynamic Network-Based Discriminatory Pricing.
- Authors
Fruchter, G. E.; Rao, R. C.; Shi, M.
- Abstract
We study the dynamic pricing decisions for competitive network service providers. We assume that each competing firm follows a three-part pricing scheme, which consists of an ongoing membership fee, a usage fee for communications within the networks, and another usage fee for communications across the networks. The difference between the two usage fees is the network-based price discount that allows price discrimination. We study the firms problems as a differential game and establish the optimal pricing policy as a Nash equilibrium feedback strategy depending on only the network sizes (i.e., the number of subscribers). We compare the dynamic network-based discount with the static discount. In the special case of a uniform calling pattern, we find that the firm network-based dynamic discount is always lower than the static discount; we find also that the firm that has a larger network can offer a bigger discount. These results are useful particularly for managers. To get further insights into the dynamic pricing policies, we explore the case of symmetric competition using numerical simulation.
- Subjects
PRICE discrimination; COMPUTER service industry; LOSS leaders; PERFECT competition; SERVICE industries; PRESCRIPTION pricing; PRICE regulation; DISCOUNT prices; SYMMETRIC functions
- Publication
Journal of Optimization Theory & Applications, 2006, Vol 128, Issue 3, p581
- ISSN
0022-3239
- Publication type
Article
- DOI
10.1007/s10957-006-9033-8