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Open Access Publications from the University of California

Essays on Information Technology and Firms' Pricing Strategy

  • Author(s): Zhang, Zhe
  • Advisor(s): Choudhary, Vidyanand
  • Shivendu, Shivendu
  • et al.
Abstract

Why do software firms sell more than one version of software to consumers? In the first chapter, I develop an analytical game theory model to examine a monopolist software firm's motivation of adopting a versioning strategy. We show that consumers' heterogeneity in requirements for software functionality and consumers' disutility from under-provisioning of software functionality are sufficient conditions for a software firm to adopt versioning strategy.

Why do deals have different discount rates on a daily-deal website? In the second chapter, I develop a two-period model to capture the strategic interaction between a daily-deal publisher and a merchant who wants to offer a deal to consumers on the publisher's website. I show that a merchant's optimal discount rate strategy and participation decision depends on the trade-offs between four effects - advertising, sampling, cannibalization and revenue sharing. Moreover, I recommend that a daily-deal publisher should take into account a merchant's marginal cost, proportion of informed consumers and consumer characteristics in formulating an appropriately customized revenue sharing contract for the merchant.

Do consumers benefit from using an online retailer's recommender system? In the third chapter, I develop an analytical framework to examine the optimal recommender system strategy of an online multi-product retailer and the effect of the recommender system on consumer surplus. I find that when the recommender system is relatively accurate, the retailer will recommend products that are never a perfect match to the recipients of the recommendations. I also find that improving the precision of a relatively accurate recommender system leads to a reduction in consumer surplus.

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