Strategic pricing model based on genetic algorithm: The case of electronic publishing market

Article type: Research Article

Authors: Alptekin, Gülfem Isiklar^*

Affiliations: Department of Computer Engineering, Galatasaray University, Turkey

Correspondence: [*] Corresponding author. Gülfem Isiklar Alptekin, Department of Computer Engineering, Galatasaray University, Turkey. Tel.: +90 2122274480/427; Fax: +90 2122595557 gisiklar@gsu.edu.tr

Abstract: The electronic-book (e-book) is one of the new technological changes that has significantly influenced the publishing industry in the last century. This has forced publishers to reconsider their distribution channels, since the Internet has provided a new means with which to serve readers. In this paper, a strategic market analysis is proposed from the perspective of a traditional publisher that needs to decide whether to switch to e-publishing business. The analysis model determines the publishing market equilibrium in three different market scenarios. Besides, it shows the impact of readers’ choices and price sensitivities on the publishers’ profits. The proposed decision support model has its basis on game theory and it is built in an oligopoly setting to reflect the severe market competition. The readers’ utilities and demands are modeled using the multinomial logit (MNL) model. Although the first scenario possesses a global optimum solution, in the remaining two market scenarios genetic algorithms (GAs) are used in order to find the solutions of the oligopolies. Numerical applications reveal the industry equilibrium point, where the sum of the profits of all publishers in the market is maximum.

Keywords: Pricing decision, game theory, competitive market model, genetic algorithm, channel management, electronic book, dual channel

DOI: 10.3233/IFS-151634

Journal: Journal of Intelligent & Fuzzy Systems, vol. 29, no. 4, pp. 1551-1564, 2015