Abstract
AbstractThis paper develops an optimization model for pricing a monopolistic application software in the presence of piracy. The purpose is raising revenue produced by product’s sale with determining prices in a price skimming strategy and minimizing amount of piracy. The model is a multifunctional price skimming optimization with simplex method which accompanied by a deterministic method for calculating time intervals of each segment. A linear function is used to describe demand of each segment. In addition, a linear piracy function is proposed to make piracy a dynamic parameter. The model has the ability to apply penetration pricing and controlling market share. Rough estimates of Windows 7 sale’s parameters are used to apply in the model. Optimizing case of Windows 7 is resulted in 7.3 percent increase in revenue while value of net market share is virtually constant. Therefore, the developed model demonstrates its competence in optimizing revenue by determining prices with presence of piracy. Results o...
Highlights
Software can be developed by distributed teams working almost anywhere in the world, and sold over the Internet in seconds, at negligible cost which is the reason of near zero marginal cost of an additional copy (Buxmann & Hess, 2012)
It implies that optimized state is to have more prices and more piracy for first segments while low price and piracy for last segments
This paper presents an optimization model for pricing a monopolistic application software
Summary
Availability of software in low price for customers dims amount of piracy. This is attributable to the fact that the most common reason for pirating software is the high cost of legal software (Cheng, Sims, & Teegen, 1997). Regarding to its nature it has a decreasing value until it gets zero price due to losing compatibility (Buxmann & Hess, 2012). It rises the penetration rate of product. Skimming raises margin and piracy reduces sale and compresses price range of skimming. This tradeoff has been addressed by an optimization model in the current study
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