Smart device product pricing based on operating system performance

Smart devices are a typical two-layer platform system, whose performance depends on both hardware quality and operating system performance. Manufactures usually release smart device products to the market sequentially due to quality improvement, and the performance of a lower version product is lower than that of a high version one. Here the pricing problem of smart device products was modeled under two scenarios: one-side market and two-side market. To explore the optimal product prices of two versions of products on a monopoly platform, the impacts of operating system performance and network externalities on the optimal prices, market shares and profits was investigated. The results show that total market share and profit of two version products increase with the enhancement of operating system performance, and platform network externalities have significant impacts on the market shares and optimal prices of the two version products. According to the model calculation results, it is obtained that how the performance of the operating system specifically influences the optimal product pricing decision of smart devices while network externality intensities are in five different areas.