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RETRACTED ARTICLE: Exploring the value of installed base: Pricing information goods under value depreciation and consumer social learning

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This article was retracted on 28 December 2013

Abstract

While last decade has witnessed a rapid growth of digital economy, there is limited understanding in literature on whether the conventional wisdom on pricing strategy still holds for information goods. On one hand, information goods, similar to durable goods, are subject to value depreciation; on the other, they differ from traditional goods in negligible marginal cost and the sensitivity to social influences. This paper develops a two-period, game-theoretic model to investigate optimal pricing strategy of information goods. On one dimension, two different depreciation mechanisms (self- and time-depreciation) are considered; on the other, two prevalent pricing schemes (perpetual licensing and subscription-fee models) are studied. We obtain closed-form solutions in all scenarios. Our findings suggest that vendors of time-depreciation information goods should adopt subscription-fee model to attract early adopters and exploit social influences, while the vendors of self-depreciation information goods should strategically balance between depreciation and social influences. Interestingly, as social influences become strong enough, the difference between pricing schemes diminishes and the tradeoff between candidate strategies vanishes. We also extend the model to static pricing in which the vendor commits to future price. We discover that the superiority of subscription-fee model might be overturned under static pricing. Our results above also imply that building consumer feedback and interaction systems could be helpful for minimizing the potential loss of a suboptimal pricing scheme.

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Authors and Affiliations

  1. School of Economics and Management, Beihang University, Beijing, 100191, China

    Yifan Dou & Tianliang Liu

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  1. Yifan Dou
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  2. Tianliang Liu
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Correspondence to Yifan Dou.

Additional information

This work was supported by the National Natural Science Foundation of China under Grant No. 71271001, 70901046, and 71302002. This is an extended work of the paper entitled “Pricing Information Goods in the Presence of Product Depreciation and Word-of-Mouth Effects”, which was published in the Proceedings of 10th International Conference of System Science and System Engineering and recommended for publication in this journal by the International Program Committee of the conference.

Yifan Dou received B. Sc. in Information Systems and Information Management (in 2007), and Ph. D. in Management Science and Engineering (in 2012), both from School of Economics and Management, Tsinghua University, China. Dr. Dou is currently an assistant professor of Information Systems at Beihang University. His research interests include economics of IS, social networks, and supply chain management. Dr. Dou has a line of publications in top peer-reviewed journals including Information Systems Research, European Journal of Operational Research, etc. Dr. Dou is currently a member of AIS, POMS, and INFORMS.

Tianliang Liu received the B.Sc. and M.Sc. degree, both in Management, from Qingdao University in 2002 and 2005, respectively, and the Ph.D. degree in Transportation Operations from Beihang University. He is currently an associate professor of Business Administration at Beihang University. His research interests include transportation economics and operations management. Dr. Liu has published over 20 papers in refereed conference proceedings and journals and has been a principal investigator of two NSFC projects.

This article has been retracted by agreement between the authors and the journal Editor-in-Chief. The core contributions in this article have been used without significant acknowledgement and approval by the project research team.

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Dou, Y., Liu, T. RETRACTED ARTICLE: Exploring the value of installed base: Pricing information goods under value depreciation and consumer social learning. J. Syst. Sci. Syst. Eng. 22, 362–382 (2013). https://doi.org/10.1007/s11518-013-5224-7

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  • DOI: https://doi.org/10.1007/s11518-013-5224-7

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