Dynamic Pricing and Advertising for Web Content Providers

Abstract:   The accumulated evidence indicates that pure revenue models, such as free-access models and pure subscription fee based models, are not sufficient to support the survival of online information sellers.  Hence, hybrid models based on a combination of subscription fees and advertising revenues are replacing the pure revenue models. In response to increasing interest in hybrid models, we study the problem of dynamic pricing on web content on a site where revenue is generated from subscription fee as well as advertisements.  We use the optimal control theory to solve the problem and obtain the subscription fee and the advertisement level over time. We first consider the case when the subscription fee can vary over time, but the advertisement level stays the same. Then we extend it by optimizing both the subscription fee and the advertisement level dynamically.  We also present several analytical and numerical results which provide some important managerial insights.