Pricing in Network Effect Markets
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چکیده
According to literature, penetration pricing is the dominant pricing strategy for network effect markets. In this paper we show that diffusion of products in a network effect market does not only vary with the set of pricing strategies chosen by competing vendors but also strongly depends on the topological structure of the customers' network. This stresses the inappropriateness of classical "installed base" models (abstracting from this structure). Our simulations show that although competitive prices tend to be significantly higher in close topology markets, they lead to lower total profit and lower concentration of vendors' profit in these markets.
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