Unobserved preferences and dynamic platform pricing under positive network externality

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Huuki, H., Svento, R. Unobserved preferences and dynamic platform pricing under positive network externality. Netnomics 21, 37–58 (2020). https://doi.org/10.1007/s11066-020-09140-w

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Title: Unobserved preferences and dynamic platform pricing under positive network externality
Author: Huuki, Hannu; Svento, Rauli
Publisher: Springer
Date: 2020
Language: en
Belongs to series: NETNOMICS: Economic Research and Electronic Networking 21, 37-58
ISSN: 1385-9587
URI: http://hdl.handle.net/10138/332652
Abstract: We study the dynamic optimization of platform pricing in industries with positive direct network externalities. The utility of the network for the consumer is modeled as a function of three components. Platform price and participation rate affect the consumer’s decision to join the platform. The platform operator is assumed to know the consumer’s sensitivities with respect to these components. In addition, the consumer’s utility is a function of other attributes, such as network privacy policies and environmental effects of the service. We assume that the distribution of these unobserved preferences in the potential customer base is known to the platform operator. We show analytically how the unobserved preferences affect the dynamic platform price design. Both static and rational expectations with respect to the platform participation are presented. We simulate an electricity market demand side management service application and show that the platform operator sets low prices in the launch phase. The platform operator can set higher launching prices if it can affect customers’ preferences, expectations or adjustment friction.
Subject: dynamic pricing
network externality
unobserved preferences
electricity market
demand side management
Subject (ysa): hinnat
asiakkaat
kuluttajat
hinnoittelu
lanseeraus
markkinointi
ympäristövaikutukset
palvelut
alustatalous
kuluttajakäyttäytyminen
sähkömarkkinat
energiamarkkinat
dynaamisuus


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