Analysis of pricing strategies for e-business companies providing information goods and services

In this paper, we introduce a mathematical model to analyze pricing and service quality strategies for e-business companies providing information services to customers. The basic strategy considered in this paper is that a monopolistic e-business company provides free services to try to earn a profit by developing premium goods or services to market created by their free goods or services. It is a kind of versioning strategy where lower quality versions of information goods are provided free. And a direct network effect was also considered. And we tried to find the profit maximizing strategies for monopolistic e-business companies. As a result, the optimal quality and price for the premium goods or services can be obtained at the same level of the intensity of the direct network effect. And the exact term related with the network externality is derived and insights are demonstrated through numerical explorations.