Long-term pricing strategy based on network externalities

Abstract

In product sales with network externalities, a Stackelberg game model is established with a new product and an existing product in the market, investigating the influence of first-mover strategy and non-strategic pricing model on the pricing, market share, and profit of an enterprise. Furthermore, the influence of network externalities and transfer costs on the strategies of latecomers is studied. Finally, the market equilibrium is analyzed. The results show that under the strategic pricing, the first entrant grabs the market share with low price and low profit in the first stage, to obtain greater network externalities in the second stage, enhance the competitiveness with latecomer, and make the total revenue greater. Given network externalities and transfer costs, the strategic behavior of the first entrant makes it harder for the later entrant to enter the market.