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Home | Seminars and Symposia | Past seminars/symposia: Wednesday, April 24, 2002

DTC Seminar Series

Pricing Online Banking Services Amidst Network Externalities


Baba Prasad
Information and Decision Sciences

Wednesday, April 24, 2002
1:00 pm

402 Walter Library

Slide presentation (powerpoint 241 KB) Slide presentation (pdf 787 KB) The problem of pricing online banking services given that the market is governed by network effects will be examined. We complicate the notion of network effects as they are traditionally modeled in economic literature in two ways. First, in the common scenario modeled in literature, network effects govern decisions of customers who buy tangible products. This implies that once the purchase decision is made, the customer no longer plays the game. In online banking, and in most online service contract arrangements, customers may reverse the adoption decision in a later period, and thus re-enter the game. Second, network externalities are commonly assumed to have a positive beneficial effect on the system. We extend this to the case when network effects are actually stochastic, being either positive or negative. We develop the rationale for modeling network effects as following a jump-diffusion process, and analyze the dynamic pricing strategies of a bank providing online banking under such circumstances. We develop several pricing strategies based on the conditions of the means and variances of the stochastic network effect.


Baba Prasad is an Assistant Professor in the Department of Information and Decision Sciences at the Carlson School of Management, University of Minnesota. Before joining the University of Minnesota, Prasad taught between 1997 and 1999 as an Assistant Professor at the Krannert Graduate School of Management at Purdue University. He has worked for his PhD in Operations and Information Management at the Wharton School of the University of Pennsylvania. His research, drawing on his pre-graduate school experience as a consultant to Wall Street firms, focuses on the interface between information systems and operations management in financial service firms. Prasad's research focuses on the strategies and economics of electronic service delivery. His work involves electronic service adoption and pricing issues in online banking. Prasad is also engaged in evaluating e-supply chains for their flexibility, and their impact on inter-firm coordination. Underlying all of his research is the notion that flexibility of internet-based operations provides competitive advantage to firms. Prasad is currently engaged in designing a framework to understand the notion of strategic flexibility in electronic commerce, and he has been developing models to identify and evaluate different types of flexibility in e-operations.