Dynamic pricing for technology upgrades in telecommunication industry

ABSTRACT

In telecommunication industry, as a superior, but compatible, technology replaces old technology, consumers gradually abandon old service/device and adopt new counterpart that has more features and better performance. This process usually generates multiple externalities within the new technology adopters as well as the old technology users. While the increase in subscription of the new service encourages more consumers to join in, the decline in performance due to increasing network load deters the adoption process. In the mean while, the diminishing population of the old technology users alleviates the congestion of the old network, hence further discourages the growth of the new services. These concurrent externalities ultimately determine the market growth dynamics. We consider the case that the new service is downward compatible and model the new service adoption process with the two-side externalities. We also propose optimal pricing strategies such that the profit of the service provider is maximized for given other constraints. The results enable decision-makers to determine the optimal marketing strategies in many practical uses such as the deployment of Third Generation (3G) networks and upgrades of networking infrastructures.

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INDEX TERMS

Keywords:
dynamic pricing, multiple externalities, telecommunication