TY - JOUR
T1 - Mobile Social Services with Network Externality
T2 - From Separate Pricing to Bundled Pricing
AU - Wang, Xuehe
AU - Duan, Lingjie
AU - Zhang, Junshan
N1 - Funding Information:
This work was supported by the Singapore Ministry of Education Academic Research Fund Tier 2 under Grant MOE2016-T2-1-173 and the US National Science Foundation under Grant CNS-1422277.
Publisher Copyright:
© 2018 IEEE.
PY - 2018/7/1
Y1 - 2018/7/1
N2 - Today, many wireless device providers choose to sell devices bundled with complementary mobile social services, which exhibit strong positive network externality. Taking a reverse engineering approach, this paper aims to quantify the benefits of selling devices and complementary services under the following three strategies: separate pricing, bundled pricing, and hybrid pricing (both the separate and bundled options are offered). A comprehensive comparison of the above three strategies is carried out for two popular service models, namely physical connectivity sharing and virtual content sharing, respectively. These two sharing service models are two popular examples under the emerging trend of sharing economy. We first study the physical service model where the provider (e.g., FON) offers users customized WiFi devices for indoor Internet access, and allows service subscribers to physically access all device owners’ WiFi when traveling. Observing that all device-owners contribute to the connectivity sharing, we show, via a Stackelberg game theoretic approach, that bundled pricing outperforms separate pricing as long as the total cost of device and service is reasonably low to stimulate network externality. Further, hybrid pricing strictly dominates bundled pricing thanks to the pricing flexibility to keep high marginal profit of device-selling. Next, we investigate the virtual sharing service model where the provider (e.g., Apple) sells devices and device-supported applications. Different from the connectivity service model, in this model service subscribers directly contribute to the virtual content sharing, and the network externality can be fairly strong. We prove that hybrid pricing degenerates to bundled pricing if the network externality degree is larger than the average device valuation, which is in stark contrast with the connectivity service model in which hybrid pricing always outperforms bundled pricing.
AB - Today, many wireless device providers choose to sell devices bundled with complementary mobile social services, which exhibit strong positive network externality. Taking a reverse engineering approach, this paper aims to quantify the benefits of selling devices and complementary services under the following three strategies: separate pricing, bundled pricing, and hybrid pricing (both the separate and bundled options are offered). A comprehensive comparison of the above three strategies is carried out for two popular service models, namely physical connectivity sharing and virtual content sharing, respectively. These two sharing service models are two popular examples under the emerging trend of sharing economy. We first study the physical service model where the provider (e.g., FON) offers users customized WiFi devices for indoor Internet access, and allows service subscribers to physically access all device owners’ WiFi when traveling. Observing that all device-owners contribute to the connectivity sharing, we show, via a Stackelberg game theoretic approach, that bundled pricing outperforms separate pricing as long as the total cost of device and service is reasonably low to stimulate network externality. Further, hybrid pricing strictly dominates bundled pricing thanks to the pricing flexibility to keep high marginal profit of device-selling. Next, we investigate the virtual sharing service model where the provider (e.g., Apple) sells devices and device-supported applications. Different from the connectivity service model, in this model service subscribers directly contribute to the virtual content sharing, and the network externality can be fairly strong. We prove that hybrid pricing degenerates to bundled pricing if the network externality degree is larger than the average device valuation, which is in stark contrast with the connectivity service model in which hybrid pricing always outperforms bundled pricing.
KW - Mobile social services
KW - bundled pricing
KW - network externality
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U2 - 10.1109/TNSE.2018.2818745
DO - 10.1109/TNSE.2018.2818745
M3 - Article
AN - SCOPUS:85044844680
SN - 2327-4697
VL - 6
SP - 379
EP - 390
JO - IEEE Transactions on Network Science and Engineering
JF - IEEE Transactions on Network Science and Engineering
IS - 3
ER -