Software dynamic pricing by an optimization deterministic model in a monopolistic market

Abstract

This paper develops an optimization model for pricing a monopolistic application software in the presence of piracy. The purpose is raising revenue produced by product’s sale with determining prices in a price skimming strategy and minimizing amount of piracy. The model is a multifunctional price skimming optimization with simplex method which accompanied by a deterministic method for calculating time intervals of each segment. A linear function is used to describe demand of each segment. In addition, a linear piracy function is proposed to make piracy a dynamic parameter. The model has the ability to apply penetration pricing and controlling market share. Rough estimates of Windows 7 sale’s parameters are used to apply in the model. Optimizing case of Windows 7 is resulted in 7.3 percent increase in revenue while value of net market share is virtually constant. Therefore, the developed model demonstrates its competence in optimizing revenue by determining prices with presence of piracy. Results of the research show that to tackle piracy, range of price skimming must be decreased in a way that highest price need to be intensely reduced while lowest one must be slightly reduced. The benefit of using this strategy, is incurring lowest revenue loss due to piracy. The Effects of an escalation in piracy on proposed optimization model include increase in number of sale, demand, selling portion, market share, and decrease in price, price difference between segments, and revenue.