The Effects Of Discount Pricing And Bundling On The Sales Of Game As A Service: An Empirical Investigation

Although many prior studies have discussed the effect of discount pricing and product bundling on sales, few investigated the effect on Game as a Service (GaaS) applications, which has been rapidly growing in the IT industry. We investigate the effect by adopting large empirical market data, including 112,858 observations of 5,570 GaaS applications in the theoretical perspective of perceived value, price fairness, expected utility, and competitive intensity. We found that both discount pricing and bundling have positive effects on the daily sales of the applications. Specifically, discount rate and the amount of discounted price (i.e., reduced price) have positive relationships with the sales increase, while the effect of discount pricing decreases as more discount deals are available in the market. However, we did not find a significant interaction effect of bundling on the relationship between discount rate and the sales increase

ESSAYS ON DYNAMIC PRICING AND BUNDLING IN SUBSCRIPTION MARKETS

This dissertation consists of two essays that investigate dynamic pricing and bundling strategies in subscription markets. In the first essay, we analyze the dynamic price discrimination strategies of a monopolist offering new services on a subscription basis. In subscription markets, the pricing policy can be based on customers’ past purchase behavior (behavioral price discrimination) and time of purchase (intertemporal price discrimination). In the presence of uncertainty regarding the value of new features and heterogeneity in consumer valuations of the existing features, we investigate the profits and rate of adoption of new technology that can be achieved with each pricing strategy. When the prior heterogeneity in consumer valuation of the existing features is relatively large, the monopolist can improve his profits by committing to ignore consumer past behavior and varying prices based only on time. We also study the role of commitment power of the monopolist to announce future prices and correlation in valuations of the new and existing features. In the second essay, we investigate the multi-product pricing strategies of a sequentially innovating monopolist introducing new services. The new service can either represent a new functionality not directly related to the existing service or an enhancement to the existing services. When the existing service is offered in multiple versions, the monopolist can sell the new service separately or bundle the new service with some or all versions of the primary service. We analyze two pricing strategies that represent the two extremes of a spectrum of bundling strategies that a monopolist offering such services can practice: Discriminative Bundling (DB) and Independent Pricing (IP). Using the discriminative bundling (DB) strategy, a service provider offering multiple versions of the primary service bundles the new service only with higher versions of the primary service while selling it separately to remaining customers. Using the independent pricing strategy (IP), the service provider offers the new service separately to all consumers including those buying lower and higher end versions. We find that the comparison of the two strategies in terms of profits depends on the nature of the new service and the general distribution of consumer valuations for the new and the primary services

Non-price competition in credit card markets through bundling and bank level benefits

The attempts to explain the high and sticky credit card rates have given rise to a vast literature on credit card markets. This paper endeavors to explain the rates in the Turkish market using measures of non-price competition. In this market, issuers compete monopolistically by differentiating their credit card products. The fact that credit cards and all other banking services are perceived as a bundle by consumers allows banks to deploy also bank level characteristics to differentiate their credit cards. Thus, credit card rates are expected to be affected by the features and service quality of banks. Panel data estimations also control for various costs associated with credit card lending. The results show significant and robust effects of the non-price competition variables on credit card rates.Credit Cards, Monopolistic Competition, Product Differentiation, Bundling, Bank Pricing Behavior, Regulation

Determination of the bundle price for digital information goods

The fast emergence of Internet as a media to distribute digital information goods created many new opportunities for the packaging and pricing of these goods. The pricing of information goods introduces a challenge since the cost structure of information goods differs from that of conventional physical goods in that they can be costly to introduce but are relatively cheap to reproduce. The bundling strategy for digital information goods helps producers to extract more value from customers and can result in cost savings due to the presence of economies of scale. This study aims to determine the optimum price a producer of digital information goods has to charge for a bundle in order to maximize his gross margin. The bundle pricing model is constructed for both uniform and exponential distributions of the fraction of information goods in the bundle that has positive value for the customers

Strategic aspects of bundling

The increase of bundle supply has become widespread in several sectors (for instance in telecommunications and energy fields). This paper review relates strategic aspects of bundling. The main purpose of this paper is to analyze profitability of bundling strategies according to the degree of competition and the characteristics of goods. Moreover, bundling can be used as price discrimination tool, screening device or entry barriers. In monopoly case bundling strategy is efficient to sort consumers in different categories in order to capture a maximum of surplus. However, when competition increases, the profitability on bundling strategies depends on correlation of consumers reservations values.Product bundling, foreclosure, price discrimination

Modeling Tiered Pricing in the Internet Transit Market

ISPs are increasingly selling "tiered" contracts, which offer Internet connectivity to wholesale customers in bundles, at rates based on the cost of the links that the traffic in the bundle is traversing. Although providers have already begun to implement and deploy tiered pricing contracts, little is known about how such pricing affects ISPs and their customers. While contracts that sell connectivity on finer granularities improve market efficiency, they are also more costly for ISPs to implement and more difficult for customers to understand. In this work we present two contributions: (1) we develop a novel way of mapping traffic and topology data to a demand and cost model; and (2) we fit this model on three large real-world networks: an European transit ISP, a content distribution network, and an academic research network, and run counterfactuals to evaluate the effects of different pricing strategies on both the ISP profit and the consumer surplus. We highlight three core findings. First, ISPs gain most of the profits with only three or four pricing tiers and likely have little incentive to increase granularity of pricing even further. Second, we show that consumer surplus follows closely, if not precisely, the increases in ISP profit with more pricing tiers. Finally, the common ISP practice of structuring tiered contracts according to the cost of carrying the traffic flows (e.g., offering a discount for traffic that is local) can be suboptimal and that dividing contracts based on both traffic demand and the cost of carrying it into only three or four tiers yields near-optimal profit for the ISP

Analysis of cloud storage prices

Cloud storage is fast securing its role as a major repository for both consumers and business customers. Many companies now offer storage solutions, sometimes for free for limited amounts of capacity. We have surveyed the pricing plans of a selection of major cloud providers and compared them using the unit price as the means of comparison. All the providers, excepting Amazon, adopt a bundling pricing scheme; Amazon follows instead a block-declining pricing policy. We compare the pricing plans through a double approach: a pointwise comparison for each value of capacity, and an overall comparison using a two-part tariff approximation and a Pareto-dominance criterion. Under both approaches, most providers appear to offer pricing plans that are more expensive and can be excluded from a procurement selection in favour of a limited number of dominant providers.Comment: 17 pages, 17 figures, 17 reference

Bundling, Product Choice, and Efficiency: Should Cable Television Networks be Offered A La Carte?

We conduct a numerical analysis of bundling's impact on a monopolist's pricing and product choices and assess the implications for consumer welfare in cable television markets. Existing theory is ambiguous: for a given set of products, bundling likely transfers surplus from consumers to firms but also encourages products to be offered that might not be under a la carte pricing. Simulation of "Full A La Carte" for an economic environment calibrated to an average cable television system suggests that consumers would likely benefit from a la carte sales. If all networks continued to be offered, the average household's surplus is predicted to increase by $6.80 (65.6%) under a la carte sales (despite a total bundle price that almost doubles) and reduced network profits would have to be such that 41 of 50 offered cable networks have to exit the market to make her indifferent. Simulation of a "Theme Tier" scenario provides intermediate benefits. The incremental marginal costs to cable systems of a la carte sales and its impact in the advertising market and on competition are important factors in determining consumer benefits. (JEL L12, L82, L50).