Optimal worst-case pricing for a logit demand model with network effects

Chenhao Du; William L. Cooper; Zizhuo Wang

doi:10.1016/j.orl.2018.03.006

Optimal worst-case pricing for a logit demand model with network effects

Chenhao Du, William L. Cooper, Zizhuo Wang

Industrial and Systems Engineering

Research output: Contribution to journal › Article › peer-review

7 Scopus citations

Abstract

We consider optimal pricing problems for a product that experiences network effects. Given a price, the sales quantity of the product arises as an equilibrium, which may not be unique. In contrast to previous studies that take a best-case view when there are multiple equilibrium sales quantities, we maximize the seller's revenue assuming that the worst-case equilibrium quantity will arise in response to a chosen price. We compare the best- and worst-case solutions, and provide asymptotic analysis of revenues.

Original language	English (US)
Pages (from-to)	345-351
Number of pages	7
Journal	Operations Research Letters
Volume	46
Issue number	3
DOIs	https://doi.org/10.1016/j.orl.2018.03.006
State	Published - May 2018

Bibliographical note

Funding Information:
This material is based upon work supported by the National Science Foundation under Grant Number CMMI 1462676 .

Publisher Copyright:
© 2018 The Authors

Keywords

Choice model
Network effect
Pricing
Revenue management

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10.1016/j.orl.2018.03.006

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title = "Optimal worst-case pricing for a logit demand model with network effects",

abstract = "We consider optimal pricing problems for a product that experiences network effects. Given a price, the sales quantity of the product arises as an equilibrium, which may not be unique. In contrast to previous studies that take a best-case view when there are multiple equilibrium sales quantities, we maximize the seller's revenue assuming that the worst-case equilibrium quantity will arise in response to a chosen price. We compare the best- and worst-case solutions, and provide asymptotic analysis of revenues.",

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AU - Cooper, William L.

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AB - We consider optimal pricing problems for a product that experiences network effects. Given a price, the sales quantity of the product arises as an equilibrium, which may not be unique. In contrast to previous studies that take a best-case view when there are multiple equilibrium sales quantities, we maximize the seller's revenue assuming that the worst-case equilibrium quantity will arise in response to a chosen price. We compare the best- and worst-case solutions, and provide asymptotic analysis of revenues.

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KW - Network effect

KW - Pricing

KW - Revenue management

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ER -

Optimal worst-case pricing for a logit demand model with network effects

Abstract

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Keywords

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