Analysis of Impact of Network Externality Product Bundling Announcement Strategy

Abstract

In the information age, typically buyers bear costs when they change their shopping habits. Therefore, it is indispensable that manufacturers know these costs during transitioning technology and brand for success in the current information economy. Previous research about switching costs emphasized corporate behavioral tactics and corporate competitiveness in the market. However, in these models, customers do not indeed change the account of the business, being charged the same price, and the switching cost is higher enough to prevent conversion. In reality, customers’ brand changes. This research hypothesizes that commodity’s consumption utility with externality increase with an increase of disposable income and externality but decreases with increasing of reservation utility’s shadow price when concerning consumption’s switching cost and endogenizing costumers behavior. When a product announcement makes a consumer group’s preference for externalities greater than that of another consumer group, the externality of its brand announcement inevitably increases. However, to increase the externality, it is necessary to attract more users to join the purchase of the brand, which naturally increases the manufacturer’s request for the creation of forenotice and the switching cost also increases.