Paper ID
2538
Paper Type
full
Description
This paper explores how competing Software-as-a-Service (SaaS) vendors make decisions on compatibility considering Behavior-based price discrimination (BBPD). We find that both SaaS vendors tend to reward switchers under BBPD, but when unilateral compatibility prevails and switching cost is high, the less efficient firm will reward its repeat consumers. Besides, the price for repeat customers is lower than that in the first period under most conditions except when the firm is incompatible with the rival and the switching cost is large enough. Further, when both firms embrace BBPD, both firms will mostly be compatible when switching cost is high but incompatible when switching cost is low. When switching cost is moderate, the less efficient firm will be unilaterally compatible with its competitor. Finally, consumer surplus reaches the largest when firms are incompatible, while social welfare and industry profits reach the peak when firms are compatible or unilaterally compatible.
Recommended Citation
Wang, Yu; Zhang, Jie; and Li, Minqiang, "Compatibility Choices for Software Service Vendors under Behavior-based Price Discrimination" (2019). ICIS 2019 Proceedings. 10.
https://aisel.aisnet.org/icis2019/general_topics/general_topics/10
Compatibility Choices for Software Service Vendors under Behavior-based Price Discrimination
This paper explores how competing Software-as-a-Service (SaaS) vendors make decisions on compatibility considering Behavior-based price discrimination (BBPD). We find that both SaaS vendors tend to reward switchers under BBPD, but when unilateral compatibility prevails and switching cost is high, the less efficient firm will reward its repeat consumers. Besides, the price for repeat customers is lower than that in the first period under most conditions except when the firm is incompatible with the rival and the switching cost is large enough. Further, when both firms embrace BBPD, both firms will mostly be compatible when switching cost is high but incompatible when switching cost is low. When switching cost is moderate, the less efficient firm will be unilaterally compatible with its competitor. Finally, consumer surplus reaches the largest when firms are incompatible, while social welfare and industry profits reach the peak when firms are compatible or unilaterally compatible.