New Results on the Design and Pricing of “Smart Products” in JMIS
The current issue of the Journal of Management Information Systems, an FT50 top journal, features Prof. Weber’s latest research on collaborative consumption. In the article “How to Market Smart Products: Design and Pricing for Sharing Markets,” he outlines strategies for product design, aftermarket control through sensing, and flexible nonlinear pricing for smart products. This work is the fourth in a series of results on the sharing economy published in JMIS since 2014. The paper further details how product intelligence can help companies generate economic value and how they can extract an optimal portion of that value from heterogeneous consumers.
This paper introduces joint product design and non-linear pricing in the context of sharing markets. Product ecosystems enable user sensing, setting the stage for the control of post-purchase consumption patterns. By varying the degree to which products can be reused and transferred among peers, a company can engineer their shareability, which together with a capacity of aftermarket control, allows for flexible non-linear pricing that involves charging for the initial purchase and for subsequent collaborative transfers separately. Using a dynamic model with heterogeneous consumers and asymmetric information, we analyze a firm’s economic strategy, including ecosystem design and flexible pricing, for long-term profitability. We show that an optimal product design balances durability-driven demand and price effects. Furthermore, for any given product design a profit-maximizing non-linear pricing schedule features retail price and sharing tariff in a robustly quadratic relationship, independent of the specifics of the consumer distribution. Various extensions, relating to the interaction of the firm’s policy with a sharing market and the possibility of time-varying sales distributions, are also considered.
The paper is available freely via open access, for sharing with others.
Weber, T.A. (2020) “How to Market Smart Products: Design and Pricing for Sharing Markets,” Journal of Management Information Systems, Vol. 37, No. 3, pp. 631—667.
- Chair of Operations, Economics and Strategy, EPFL
- More Information about OES
- New Paper on “Smart Products for Sharing” in JMIS, EPFL, August 2017
- New Publication on Pricing and Payoffs in the Sharing Economy, EPFL, May 2016
- Sharing Rather Than Owning: How to Enable Collaborative Consumption, EPFL, July 2014