Pay-What-You-Want Pricing in the Digital Product Marketplace: A Feasible Alternative to Piracy Prevention?

In pay-what-you-want (PWYW) pricing, buyers are allowed to pay any amount they want, often including a price of zero. Standard theory predicts that buyers are driven solely by their own interest and will always choose to pay nothing, making PWYW pricing impractical to use. Nonetheless, PWYW pricing has been consistently occurring in the marketplace. We build and analyze a theoretical model to explain the presence of PWYW pricing in the marketplace and identify the situations under which businesses are better off adopting it over the traditional posted pricing. Because the digital product domain is a particularly good fit for PWYW pricing because of its constant exposure to piracy threats, we focus on digital product firms and examine PWYW pricing as an alternative to their piracy prevention efforts. We show that PWYW pricing becomes a superior pricing strategy when the pirate version is quite similar to the authentic product and it is costly for the firm to improve its product quality. Moreover, if network externalities are present, PWYW pricing can outperform posted pricing only when the network externalities are weak. The results explain why PWYW pricing is rare in the established digital product marketplace, which exhibits strong network externalities.

Payment Systems as a Driver for Platform Growth in E-Commerce

This chapter visits some of the fundamental concepts from platform economics, network effects, and network externalities. Further on, it discusses definitions of two-sided and multi-sided markets, how they are treated as business models. These concepts are further compared to the concept service ecosystem. A case of a payment service provider whose business model contributes to the growth of e-commerce is included. The purpose is to tease out how research on platforms has developed since e-commerce was in its infancy. The fundamental concepts developed in network economics are still valid and have been translated into different fields with a focus on value creation, information, and interaction. How platforms within platforms spur each other's growth is an area that has the potential to reach new insights on the platform economy.

Video Platforms’ Value-Added Service Investments and Pricing Strategies for Advertisers

Using a game-theoretical approach, this paper develops a duopoly model and examines value-added service (VAS) investments and pricing strategies on video platforms with opposite inter-group network externalities between two groups. We consider two scenarios with VAS investment, namely, a single platform investing in VASs for advertisers (S-Model) and both platforms investing in VASs for advertisers (B-Model). We found the following: (i) In the S-Model, the investing platform’s VAS level remains maximum when the marginal investing cost is low; otherwise, it decreases with the cost. Investing and non-investing platforms’ advertising prices are unaffected by the marginal investing cost if the cost is low; otherwise, the prices decrease and increase with the cost, respectively. Furthermore, the investing platform’s advertising price is higher than the non-investing platform’s. (ii) In the B-Model, the two platforms’ VAS levels remain maximum if the marginal investing cost is low; otherwise, they decrease with the cost. The two platforms’ advertising prices are equal and irrelevant to the marginal investing cost. (iii) The investing platform’s VAS level in the S-Model is higher than or the same as that in the B-Model and the investing platform’s advertising price in the S-Model is higher than that in the B-Model. (iv) Compared to the scenario without VAS investment, the investing platform’s advertising price is higher in the S-Model, but the same in the B-Model.

The Value of Price Discrimination in Large Social Networks

We study the value of price discrimination in large social networks. Recent trends in industry suggest that, increasingly, firms are using information about social network to offer personalized prices to individuals based upon their positions in the social network. In the presence of positive network externalities, firms aim to increase their profits by offering discounts to influential individuals that can stimulate consumption by other individuals at a higher price. However, the lack of transparency in discriminative pricing may reduce consumer satisfaction and create mistrust. Recent research focuses on the computation of optimal prices in deterministic networks under positive externalities. We want to answer the question of how valuable such discriminative pricing is. We find, surprisingly, that the value of such pricing policies (increase in profits resulting from price discrimination) in very large random networks are often not significant. Particularly, for Erdös–Renyi random networks, we provide the exact rates at which this value decays in the size of the networks for different ranges of network densities. Our results show that there is a nonnegligible value of price discrimination for a small class of moderate-sized Erdös–Renyi random networks. We also present a framework to obtain bounds on the value of price discrimination for random networks with general degree distributions and apply the framework to obtain bounds on the value of price discrimination in power-law networks. Our numerical experiments demonstrate our results and suggest that our results are robust to changes in the model of network externalities. This paper was accepted by Gabriel Weintraub, revenue management and market analytics.

Network Externality and Subsidy Structure in Two-Sided Markets: Evidence from Electric Vehicle Incentives

This paper uses new, large-scale vehicle registry data from Norway and a two-sided market framework to show nonneutrality of different subsidies and estimate their impact on electric vehicle adoption when network externalities are present. Estimates suggest a strong positive connection between electric vehicle purchases and both consumer price and charging station subsidies. Counterfactual analyses suggest that between 2010 and 2015, every dollar spent on station subsidies resulted in more than twice as many additional electric vehicle purchases than the same amount spent on price subsidies. However, this relation inverts with increased spending, as station subsidies’ impact tapers off faster. (JEL D12, D62, D85, H25, L62, Q54)

Synchronized Bursts of Productivity And Success In Individual Careers

Despite a significant understanding of epidemic processes in biological, social, financial, and geophysical systems, little is known about the contagion behavior in individual productivity and success. Here we uncover synchronized bursts in individual productivity and success. We introduce an epidemic model to study the contagion of scholarly productivity and YouTube success. Our analysis reveals the strong influence of network externalities in individual careers. The observed synchronization of individual productivity and success is likely mediated by sustained flows of information within the network.

Analysis and Application of Salop Model under Network Effect

Based on Salop’s ring city model, this paper applies the mathematical model to solve the problem of benefit game about Bertrand competition under the environment of network effect. The equilibrium solutions for both players are given in this paper, and the equilibrium solution of Salop’s ring city model depends on the effect of network externalities. The magnitude of network externalities determines the changes in welfare.

A review of the research on externality of urban network

Urban network research has become the frontier academic field of international urban research and has gradually become a hot spot. At present, the related literature on “urban network” mostly focuses on conceptual discussion, dimension analysis, and network structure analysis. Research on the influence of network on regional economic development is relatively weak. Externality, as an essential attribute of urban network, is of great significance to the evolution of urban network and the development of cities and regions. This article starts from a comparison of agglomeration externalities with urban network externalities, focusing on the review and evaluation of the formation mechanism, utility, and measurement methods of urban network externalities.The synergy effect, integration effect, and borrowing size are considered important reasons for the formation of urban network externalities. The research on the effectiveness of urban network externalities focuses on two aspects. The first is the role of factor mobility in promoting knowledge diffusion and innovation, and the second is the impact of urban network on competitiveness and economic growth. Based on the existing literatures, the research on the measurement of urban network externalities mainly involves identification and estimation, including three common methods as correlation analysis, regression analysis, and spatial econometric analysis. The existing empirical researches on externalities are still mostly based on static analysis and lack dynamic consideration. The issues that need further attention in the future include theoretical understanding of urban network externalities, externality measurement methods, and empirical research.