Abstract:

With continuous innovations in information technology， the demand for information products in the market has been growing. The freemium model has become a widely adopted business strategy by information product developers. Decisions regarding product pricing and advertising strategies have become crucial research questions. A game-theoretical model between information product developers and consumers is constructed to investigate the optimal pricing and advertising strategies for information product developers when network effects are present. A comparison is made between the ad-free pure payment model and the freemium model. The impact of advertising revenue rate and network effect strength on optimal pricing， advertising intensity， optimal profit， consumer surplus， and social welfare is analyzed. The results indicate that the profit of developers under the freemium model is consistently higher than that under the pure payment model. When network effects are weak， there exists a U-shaped relationship between advertising intensity and advertising revenue rate （that is， first decreases and then increases）. Conversely， when network effects are strong， advertising intensity starts at zero and increases with advertising revenue rate. In the extension section， considering the existence of open screen advertisement， the profit of developers under the freemium model remains higher than that under the pure payment model. Numerical experiments reveal that by adjusting the quality of free products based on different advertising revenue levels， developers can further enhance their profits. The main contribution of this research lies in considering the roles of advertising and network effects in the freemium model. The research findings fill a gap in the field of information product pricing and offer insights and recommendations for decision-making by information product developers.

Key words: information products, advertising, freemium model, network effects