Pricing strategy with customers’ privacy concerns in Smart-X systems

ABSTRACT

This paper investigates the impact of privacy concerns on customers’ purchasing decisions and service providers’ pricing strategies in Smart-X systems. We develop profit maximisation models to test purchasing decisions and pricing strategies of advanced and basic services in monopoly and competitive markets. We find customers’ privacy costs and service differentiation determine each service provider’s pricing decision and their relative market position. In asymmetrical competition markets, service providers can only coexist when the degree of service differentiation is moderate. These findings have practical implications for the increasingly competitive global markets of specialised products that require pre- and post-purchase services.

KEYWORDS:

• Smart-X system
• customer privacy
• perceived service value
• service differentiation
• provider competition

Acknowledgments

Yang was supported in part by the National Natural Science Foundation of China under grant number 71571043, the University of International Business and Economics under grant number 17JQ06, and the Fundamental Research Funds for the Central Universities in UIBE under grant number CXTD11-04.

Disclosure statement

No potential conflict of interest was reported by the authors.

Additional information

Funding

This work was supported by the National Natural Science Foundation of China [71571043], the University of International Business and Economics under grant number [17JQ06], and the Fundamental Research Funds for the Central Universities in UIBE under grant number [CXTD11-04].