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Optimal Sales Schemes for Network Goods

Author

Listed:
  • Alexei Parakhonyak

    (Department of Economics, University of Oxford, Oxford OX1 2JD, United Kingdom)

  • Nick Vikander

    (Department of Economics, University of Copenhagen, 1353 Copenhagen, Denmark)

Abstract
This paper considers a monopolist’s product-launch strategy in the presence of network effects, focusing on how to exploit these effects to the maximum possible extent. In our formal framework, the firm sets a price for its product and chooses a sales scheme, which effectively determines how consumers can learn from each other about the product’s popularity. Our results on the profitability of different schemes provide insights on a variety of managerial issues that are of practical relevance for product launch. Specifically, to best exploit network effects, our results suggest releasing preorder and sales information to consumers. They also suggest taking a sequential approach to multimarket product launch, launching first in smaller markets before larger ones. Moreover, they identify possible benefits of promoting prerelease consumer communication, and they support the idea of targeting independent-minded consumers, so they can serve as opinion leaders for those who follow.

Suggested Citation

  • Alexei Parakhonyak & Nick Vikander, 2019. "Optimal Sales Schemes for Network Goods," Management Science, INFORMS, vol. 65(2), pages 819-841, February.
    • Handle: RePEc:inm:ormnsc:v:65:y:2019:i:2:p:819-841
    DOI: 10.1287/mnsc.2017.2972
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    Cited by:

    1. Aoyagi, Masaki, 2018. "Bertrand competition under network externalities," Journal of Economic Theory, Elsevier, vol. 178(C), pages 517-550.
    2. Alexei Parahonyak & Nick Vikander, 2024. "Strategic Use of Product Delays to Shape Word-of-Mouth Communication," Economics Series Working Papers 1032, University of Oxford, Department of Economics.
    3. Junjie Zhou & Chen‐Nan Liao & Ying‐Ju Chen, 2023. "Optimal selling scheme in social networks: hierarchical signaling, sequential selling, and chain structure," Production and Operations Management, Production and Operations Management Society, vol. 32(7), pages 2138-2153, July.
    4. Hattori, Keisuke & Zennyo, Yusuke, 2018. "Heterogeneous Consumer Expectations and Monopoly Pricing for Durables with Network Externalities," MPRA Paper 89893, University Library of Munich, Germany, revised 08 Nov 2018.
    5. Joost Rietveld & Joe N. Ploog, 2022. "On top of the game? The double‐edged sword of incorporating social features into freemium products," Strategic Management Journal, Wiley Blackwell, vol. 43(6), pages 1182-1207, June.

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    More about this item

    Keywords

    product launch; network effects; sequencing of sales;
    All these keywords.

    JEL classification:

    • M31 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Marketing and Advertising - - - Marketing
    • D42 - Microeconomics - - Market Structure, Pricing, and Design - - - Monopoly
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies

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