Selling information products: Sale channel selection and versioning strategy with network externality

Abstract

The purpose of this paper is to provide a quantitative analysis of selling information products, aiming to determine the best sale channel and versioning strategy in the presence of network externality. An information product supply chain consisting of an information supplier, a retailer, and consumers is considered. In this supply chain, a Stackelberg game exists between the supplier and retailer, in which the supplier is the leader and the retailer is the follower. This paper analyzes the decision behaviors of the supplier, the retailer, and consumers in selling or buying information products. In our tractable analyses, consumer valuation for the product is uniformly distributed, and network externality intensity ranges from 0 to 1. A sale channel model is developed to maximize the supplier׳s profit based on the fixed-fee policy in the presence of the network externality. By comparing different channels, we determined the best sale channel and versioning strategy for a supplier. Our main findings include: A supplier prefers the versioning strategy when network externality exists in the market, whereas the single-version strategy is more preferable for an information product when network externality does not exist in the market. When two versions are released in a market with network externality, the best sale channel strategy is that the high-quality version is distributed through the direct sale channel and the low-quality version is sold through the retailing channel.