An agent-based model to study the market dynamics of perpetual and subscription licensing
Authored by Zhe Song, Ziyuan Zhang, Xiaolin Xu, Chunlin Liu
Date Published: 2015
DOI: 10.1057/jors.2014.12
Sponsors:
Chinese National Natural Science Foundation
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Model Documentation:
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Abstract
This paper examines the market dynamics between two competing pricing
strategies through an agent-based simulation model. Specifically, this
study is inspired by the rising popularity of the subscription licensing
strategy in software industry, which offers many advantages over the
traditional fixed-fee perpetual licensing strategy. However, it remains
unclear under what conditions a firm implementing the subscription
licensing strategy will win the market over its competitors practising
the fixed-fee perpetual licensing strategy. Using an agent-based model, we simulate two types of firms that are developing and selling two
similar products or services to a fixed number of heterogeneous
customers with the aforementioned two different pricing strategies. An
individual customer chooses a product or service based on his or her own
preference as well as the product's price and performance. Firms spend a
percentage of the accumulated revenue on research and development to
improve the product or service's performance. Simulation results suggest
that there is a narrow window for the subscription licensing strategy to
beat the traditional perpetual licensing strategy, especially when a
large customer base is already established with the perpetual licensing
strategy.
Tags
Simulation
Exploitation
Exploration
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