Simulating Discount-Pricing Strategies for the GSM-Mobile Market

Abstract

Achieving a successful market entry on a network effect market is a great challenge. The pre-existing customer base of competitors will usually force a new supplier to concede in order to entice other companies' customers away and to compensate for network effects. The cell phone market shows a special form of network effects that arises from different pricing for on-net and off-net calls. Simulation models can help to estimate consequences of pricing strategies for different components of a cell phone contract even prior to market entry.

Empirical Evaluation of Fair Use Flat Rate Strategies for Mobile Internet

“…Therefore, both values are well above the 25% chance criterion of random choice. Therefore, we conclude that our model is an adequate one (e.g., Figge and Theysohn 2006;Schlereth and Skiera 2009) and that the data are suitable for the following simulation.…”

“…For this purpose, we suggest the use of a simulation model which demonstrates quantitatively the effect of different strategies on the contribution margin as an aid to decision making. Unlike the existing and, in most cases, purely analytical work on the determination of optimal prices (e.g., Schade et al 2009;Png and Wang 2010), which assumes that customer preferences are known, this paper uses discrete choice experiments to empirically estimate consumers reaction to the offer of fair use flat rates.…”