Abstract
This paper analyzes the decision behaviors of the manufacturer, retailer, and consumers in the presence of network externality, and develops a sale channel model for maximizing the manufacturer’s profit. Based on the comparison among different channels, it is shown that the manufacturer prefers versioning strategy with network externality when the consumer’s valuation for information products is uniformly distributed, whereas one version strategy is more preferable without network externality. The best sale channel strategy is to distribute the high-quality version through the direct sale channel and the low-quality version through retailing channel when there is network externality.
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