Network externality, call externality and price policy: Consumer development analysis of China 3G mobile data services

The key of 3G data services development in the primary period is to expand the firm's basis of subscriber number and rapid market growth. However, price strategy is an important weapon to popularize 3G data services on some extent. This paper studies the price of 3G data services and market development under network externalities and call externalities. Consumer “self-selection” is induced to models of bundling tariff and two-part tariff; the optimal pricing strategies of two pricing models are analyzed; and then the corresponding market development strategies are dropped from the optimal pricing strategy. The result shows that the optimal consumer development strategy is to draw high-demand consumers to become the firm's subscribers with precedent in both pricing systems because of the effects of network externalities. Whereas the firm's development of low-demand consumers is spreading out following the increase of the firm's subscriber proportion. What's more, call externalities will reduce the firm's activity to serve the low-demand consumers.