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Author: Ke-Wei Huang
Publisher:
ISBN:
Category :
Languages : en
Pages : 0
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Book Description
In this paper we analyze a model of usage pricing for digital products with discontinuous supply functions, which characterizes a number of information technology-based products and services for which variable increases in demand are fulfilled by the addition of "blocks" of computing or network infrastructure. Such goods are often modeled as information goods with zero variable costs; in fact, the actual cost structure resembles a mixture of positive periodic fixed costs and zero marginal costs. This paper discusses the properties of a general solution for the optimal nonlinear pricing of such digital goods. We show that the discontinuous cost structure can be accrued as a virtual constant variable cost. This general solution is applied to solve two related extensions. First, this paper investigates the optimal technology capacity planning when the cost function is both discontinuous and declining over time. Second, we characterize the optimal costing for the discontinuous supply when it is shared by several business profit centers. Our finding suggests that the widely adopted full-cost-recovery policies are typically suboptimal.
Author: Ke-Wei Huang
Publisher:
ISBN:
Category :
Languages : en
Pages : 0
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Book Description
In this paper we analyze a model of usage pricing for digital products with discontinuous supply functions, which characterizes a number of information technology-based products and services for which variable increases in demand are fulfilled by the addition of "blocks" of computing or network infrastructure. Such goods are often modeled as information goods with zero variable costs; in fact, the actual cost structure resembles a mixture of positive periodic fixed costs and zero marginal costs. This paper discusses the properties of a general solution for the optimal nonlinear pricing of such digital goods. We show that the discontinuous cost structure can be accrued as a virtual constant variable cost. This general solution is applied to solve two related extensions. First, this paper investigates the optimal technology capacity planning when the cost function is both discontinuous and declining over time. Second, we characterize the optimal costing for the discontinuous supply when it is shared by several business profit centers. Our finding suggests that the widely adopted full-cost-recovery policies are typically suboptimal.
Author: Ke-Wei Huang
Publisher:
ISBN:
Category :
Languages : en
Pages : 111
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Book Description
Author: Michael I. C. Nwogugu
Publisher: CRC Press
ISBN: 1498783945
Category : Business & Economics
Languages : en
Pages : 302
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Book Description
Illegal online file sharing costs companies tens of billions of dollars of lost revenues around the world annually and results in lost productivity, various psychological issues, and significant reduction of incentives to create and innovate. Legislative, technical, and enforcement efforts have failed. This book presents psychological theories about why people illegally share files online; analyzes and characterizes optimal sanctions for illegal online file sharing; introduces new models for pricing of network-access and digital-content to help reduce illegal online file sharing; introduces new content control and P2P systems; and explains why game theory does not work in pricing of network access.
Author: Petra Schulz
Publisher:
ISBN:
Category :
Languages : en
Pages :
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Book Description
Author: Justin T. Huang
Publisher:
ISBN:
Category :
Languages : en
Pages : 0
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Book Description
Online marketplaces frequently implement design features which link products' visibility and discovery to historical sales: for example, top selling products are featured more prominently on the frontpage and search results. Unlike other intertemporal demand linkages such as word-of-mouth or network effects, the functional form, inputs, and weights of this linkage policy can be specified directly by the marketplace operator. A strong linkage between historical sales and future visibility will promote top-selling and presumably popular and high quality products, yet entrenches incumbents and impedes consumers' discovery of new products. I explore these complex tradeoffs using modeling based on data from a large app store-like marketplace for digital goods. I present a structural model in which the marketplace's chosen visibility policy is internalized by sellers in their pricing decisions and incorporate rich institutional details from the marketplace to aid in estimation. This model shows that current marketplace policy leads sellers to compete for visibility by adopting strategies of lowered introductory pricing. The widespread use of introductory pricing strategies leads to inefficient pricing from an aggregate perspective, reducing seller revenue and thereby the marketplace operator's revenue share. This issue can be thought of as a form of channel conflict from the perspective of the marketplace operator, whereby the operator in the role of the wholesaler would like to enforce a higher price level but is thwarted by seller (retailer) competition for visibility. I evaluate a mitigation strategy the marketplace operator could pursue - ranking products by historical revenue rather than sales quantity - through counterfactual simulation and find that the marketplace operator could increase revenue 13% by switching ranking algorithms.
Author: Gal Oestreicher-Singer
Publisher:
ISBN:
Category :
Languages : en
Pages : 0
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Book Description
The effective management of digital rights is the central challenge in many industries making the transition from physical to digital products. We present a new model that characterizes the value of these digital rights when products are sold both embedded in tangible physical artifacts, and as pure digital goods, and when granting rights permitted by one's digital rights management (DRM) platform may affect the extent of digital piracy. Our model indicates that in the absence of piracy, digital rights should be unrestricted, since a seller can use its pricing strategy to optimally balance sales between physical and digital goods. However, the threat of piracy limits the extent to which digital rights should be granted: the value of digital rights is determined not only by their direct effect on the quality of legal digital goods, but by a differential piracy effect that can lower a seller's pricing power. When the latter effect is sufficiently high, granting digital rights can have a detrimental effect on value - our model indicates that this kind of effect is more likely to be observed for digital rights that aim to replicate the consumption experience of physical goods, rather than enhancing a customer's digital experience. We test the predictions of our analytical model using data from the ebook industry. Our empirical evidence supports our theoretical results, showing that four separate digital rights each have an economically significant impact on ebook prices, and establishing that the digital rights which aim to replicate physical consumption while increasing the threat of piracy are the ones that have negative impact on seller value. We also show that if the pricing of a digital good is keyed off that of an existing tangible good, optimal pricing changes for the former should be more nuanced, rather than simply mirroring changes in the price of the latter, and we discuss the effect of the technological sophistication of potential customers on optimal pricing and rights management. Our results represent new evidence of the importance of an informed and judicious choice of the different digital rights granted by a DRM platform, and provide a new framework for guiding managers in industries that are progressively being digitized.
Author: Justin Tsai Huang
Publisher:
ISBN:
Category :
Languages : en
Pages :
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Book Description
There has been rapid growth in digital goods platform-marketplaces such as the Apple App Store or Google Play store, partially driven by low barriers to entry for new and entrepreneuring developers looking to sell their products. These small and independent sellers rely on marketplace mechanisms for product discovery in the absence of the means or ability to advertise. App store markets frequently link visibility and discovery to historical sales: top selling products are featured more prominently on frontpage and search results. Similar mechanisms are present in many online store contexts. Yet, their impact on marketplace outcomes has largely been understudied in the literature. This research aims to bridge this gap using data from a large app store-like marketplace to examine the implications of this common marketplace visibility policy. I present a model in which the visibility policy is internalized by sellers in their pricing decisions and incorporate rich institutional details from the marketplace to aid in estimation. Using this model, I show that marketplace policy leads sellers to compete for visibility by adopting strategies of lowered introductory pricing. The widespread use of introductory pricing strategies leads to inefficient pricing from an aggregate perspective, reducing seller revenue and thereby the marketplace operator's revenue share. This issue can be thought of as a form of channel conflict from the perspective of the marketplace operator, whereby the operator in the role of the wholesaler would like to enforce a higher price level but is thwarted by seller (retailer) competition for visibility. I evaluate a mitigation strategy the marketplace operator could pursue - ranking products by revenue rather than sales quantity - through counterfactual simulation and find that the marketplace operator could increase revenue 13% by switching ranking algorithms, though at the cost of consumer welfare and among other implications.
Author: Yinliang (Ricky) Tan
Publisher:
ISBN:
Category :
Languages : en
Pages : 18
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Book Description
The advent of digital goods has made a significant impact on the current traditional (physical) goods markets for items such as movies, music, video games, and books. Firms that manage both traditional and digital goods distribution channels are facing many emerging operational challenges. One of the most pivotal problems for these media related industries concerns the supply chain contract model utilized for the distribution of digital goods alongside their traditional counterparts. Recently, the agency model exploited by publishers in the e-book industry has been highlighted in the press as a result of the U.S. Department of Justice's (DOJ) lawsuit against Apple, Inc. Chief amongst the DOJ regulators' complaints was that e-book prices increased and consumer surplus decreased as a direct result of the agency model. We investigate the strategic impact of the agency model in comparison with the prevalent wholesale and fixed price models by formulating a dual channel model of distribution accommodating sales of both traditional and digital goods. In contrast to the current press concerning the DOJ's lawsuit, we find that the equilibrium price of digital goods is lower in the agency model than in the conventional wholesale model. Furthermore, the agency model can increase firm's profit as well as consumer surplus by mitigating the double marginalization effect within the digital goods supply chain. Finally, we also conceptualize the similarity and differences between the agency model and revenue sharing contracts.
Author: Frank Frohmann
Publisher: Springer Nature
ISBN: 3031245911
Category : Business & Economics
Languages : en
Pages : 343
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Book Description
This is one of the first books to combine the current megatrend of digitalization and pricing as the most effective lever for increasing and sustaining profits. The book presents the basics of digital pricing as well as modeling methods and implementation examples. This structure helps in tackling the latest developments and challenges due to digitalization. Readers will gain a detailed insight into using innovative revenue and price models to generate a sustainable competitive advantage for their companies. The author uses his cross-industry experience to draw on several examples of innovative digital pricing approaches which can be applied in industrial sectors such as automotive, industrial goods and machinery, as well as service sectors like telecommunications, transportation and tourism.
Author: Michael C. I. Nwogugu
Publisher:
ISBN:
Category :
Languages : en
Pages : 0
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Book Description
The main objectives of this article are a) to develop pricing schemes (for digital content) that reduce the information producers' losses from copyright infringement while maximizing social welfare, b) show how the configuration of networks affects propensity for Digital Piracy and pricing of digital content; c) analyze how the present mispricing of internet access contributes to illegal online file-sharing.
