Pacific Asia Conference on Information Systems ( PACIS ) Summer 6-27-2016 NETWORK EXTERNALITY ON RETAILER AND SUPPLIER PRICING STRATEGIES FOR COMPETITIVE PRODUCTS

Network externality, which affects the value of many high-tech and Internet-related products, may have a critical impact on firm strategies. This paper focuses on the strategy selection of various players in a channel structure. We design a sequential game among two suppliers and a retailer. In the developed game and model, we provide two optional strategies to the retailer, whereas suppliers can impact retailer strategies with their own pricing. We found that (direct) network externality typically had a positive effect on firms. More important, we conclude that when the degree of product network externality from a weak supplier reaches a certain scale, a relatively stable state of competition is facilitated, which is more profitable compared with a collusion strategy. Otherwise, the two suppliers can still maintain a competition relationship. However, a collusion strategy may be more profitable than competition in the second case. In this article, we recommend an acquisition strategy as a sustainable and reasonable collusion strategy.

[1]  Luís M. B. Cabral,et al.  Monopoly Pricing With Network Externalities , 1999 .

[2]  Li Li,et al.  Enhancing User Loyalty through Network Externality: An Empirical Study on B2B Platform , 2014, WHICEB.

[3]  Tayfun Keskin,et al.  Exploring the trade-off between immediate gratification and delayed network externalities in the consumption of information goods , 2008, Eur. J. Oper. Res..

[4]  Bing Jing,et al.  Network externalities and market segmentation in a monopoly , 2007 .

[5]  K. Srinivasan,et al.  New Products, Upgrades, and New Releases: A Rationale for Sequential Product Introduction , 1997 .

[6]  Nan Yang,et al.  Dynamic Pricing and Inventory Management under Network Externalities , 2015 .

[7]  Ralph-C. Bayer,et al.  Network Externalities, Demand Inertia and Dynamic Pricing in an Experimental Oligopoly Market , 2007 .

[8]  Nicholas Economides.  Durable Goods Monopoly with Network Externalities with Application to the Pc Operating Systems Market , 1999 .

[9]  Bikram Ghosh,et al.  Competitive Bundling and Counter-bundling with Generalist and Specialist Firms : Research Note 1 , 2006 .

[10]  Bikram Ghosh,et al.  Competitive Bundling and Counter-bundling with Generalist and Specialist Firms-Technical Appendix , 2006 .

[11]  Pio Baake,et al.  Vertical product differentiation, network externalities, and compatibility decisions , 2001 .

[12]  John Gallaugher,et al.  Understanding Network Effects in Software Markets: Evidence from Web Server Pricing , 2002, MIS Q..

[13]  Guangsug Hahn,et al.  The Effects of Strategic Delegation on Price Competition with Product Compatibility and Network Externalities , 2015 .

[14]  C. Shapiro,et al.  Network Externalities, Competition, and Compatibility , 1985 .

[15]  B. Bensaid,et al.  Dynamic monopoly pricing with network externalities , 1996 .

[16]  Torsten Heinrich,et al.  Standard wars, tied standards, and network externality induced path dependence in the ICT sector , 2014 .

[17]  Joseph Farrell,et al.  Installed base and compatibility : innovation, product preannouncements and predation , 1986 .

[18]  Jeong-Yoo Kim,et al.  Product Compatibility and Technological Innovation , 2000 .

[19]  Nicholas Economides,et al.  Network Externalities, Complementarities, and Invitations to Enter , 1996 .

[20]  Zhiyong (John) Liu,et al.  Selling information products: Sale channel selection and versioning strategy with network externality , 2015 .

[21]  B. Nalebuff.  Bundling as an Entry Barrier , 2004 .

[22]  Vijay Mahajan,et al.  Optimal Bundling of Technological Products with Network Externality , 2010, Manag. Sci..