Dynamic network-based discriminatory pricing

G. E. Fruchter, R. C. Rao, M. Shi

Research output: Contribution to journalArticlepeer-review

2 Scopus citations


We study the dynamic pricing decisions for competitive network service providers. We assume that each competing firm follows a three-part pricing scheme, which consists of an ongoing membership fee, a usage fee for communications within the networks, and another usage fee for communications across the networks. The difference between the two usage fees is the network-based price discount that allows price discrimination. We study the firms problems as a differential game and establish the optimal pricing policy as a Nash equilibrium feedback strategy depending on only the network sizes (i.e., the number of subscribers). We compare the dynamic network-based discount with the static discount. In the special case of a uniform calling pattern, we find that the firm network-based dynamic discount is always lower than the static discount; we find also that the firm that has a larger network can offer a bigger discount. These results are useful particularly for managers. To get further insights into the dynamic pricing policies, we explore the case of symmetric competition using numerical simulation.

Original languageEnglish
Pages (from-to)581-604
Number of pages24
JournalJournal of Optimization Theory and Applications
Issue number3
StatePublished - Mar 2006


  • Competition
  • Differential games
  • Dynamic pricing
  • Nash equilibrium
  • Price discrimination
  • Telecommunication service pricing


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