Paper Info
Title
Product Line Pricing under Marginal Moment Model with Network Effect.
Abstract
The complex network effect of the product exhibits has a significant impact on the product line optimization design. The multinomial logit (MNL) model which is used to simulate consumer choice behavior is applied in most of product line optimization problems. However, its assumptions, independence of irrelevant alternatives (IIA) and the same Gumbel distribution of random error terms, are usually difficult to be met in practice. The marginal moment model (MMM) can be used when the mean and variance of consumer's utility error are known. The MMM not only has weak assumption conditions but also overcomes the IIA problem of MNL model. In this paper, we study the product pricing problem based on MMM with endogenous negative network effect. Firstly, we construct a variant of MMM considering network effect in product line optimization design. Secondly, we prove that the revenue function is concave in market share. We propose the solving methods of the model to obtain the optimal price, the corresponding market share, and the revenue under three different scenarios, i.e., developing single product, homogeneous products, and heterogeneous products. Finally, numerical experiments show that the proposed model can better simulate consumer choice behavior and potentially increase revenue.
Year
DOI
Venue
2019
10.1155/2019/6104805
COMPLEXITY
Field
DocType
Volume
Revenue,Mathematical optimization,Independence of irrelevant alternatives,Multinomial logistic regression,Control theory,Consumer choice,Network effect,Gumbel distribution,Market share,Optimization problem,Mathematics
Journal
2019
ISSN
Citations 
PageRank 
1076-2787
0
0.34
References 
Authors
17
5
Name
Order
Citations
PageRank
Wei Qi1178.27
Xing-Gang Luo213814.85
Xuwang Liu331.75
Yang Yu4105.28
Zhongliang Zhang500.68