Pricing policy paper vinay vekariya
Pricing Policy paper submitted as a partial fulfillment for the course "Managerial Economics for decision making" during MBA at Pace University
Published on: Mar 4, 2016
Transcripts - Pricing policy paper vinay vekariya
Paper on Pricing Policy of
Vinay Vekariya | U01147571
Prof. Haralambos Kostakopoulos
New York, NY
Prepared in partial fulfillment
the requirements of the course
MGT 672 – Managerial Economics for Decision Making
MASTER OF BUSINESS ADMINISTRATION
One Pace Plaza, New york, NY
1.0 Introduction & Business ............................................................................................... 1
2.0 Pricing Strategy ............................................................................................................. 2
3.0 Antitrust criteria applied to ‘LinkedIn’...................................................................... 5
4.0 Works cited .................................................................................................................... 8
1.0 Introduction & Business
‘LinkedIn’ is the world’s largest Professional network working on Internet. According to
2014 Annual report of ‘LinkedIn’, the size of ‘LinkedIn’ community has reached to 347
million individual members from 200 countries. LinkedIn is the most extensive,
accessible and accurate network focused on Professionals in the world.
Management team of LinkedIn believes that the objective of LinkedIn is to create value
for members by connecting them to the people, knowledge and opportunities that are
crucial to them for professional development. LinkedIn provides applications and tools
to members who can utilize them to manage their careers to attain their potential.
LinkedIn provides majority of its products and services at no cost to members in a vision
that this business model delivers greatest possible values to the largest number of
professional members. As a result, the LinkedIn member community continue to
develop and strengthening and benefiting the members.
LinkedIn generates revenue from three distinct product lines, which are Premium
Subscriptions, Talent Solutions, and Marketing Solutions. These three-product lines are
marketed through two channels, which are Offline, and Online channels. Offline field
sales organization engages both large and small business firms as customers. Online,
Self-serving channel, generated revenue from enterprise customers and individual
members purchasing higher subscriptions. LinkedIn considers the purpose behind this
Monetization policy is that it aligns objectives between members and customers and
delivers revenue and earnings to LinkedIn ensuring sustainable growth over long term.
2.0 Pricing Strategy
LinkedIn has proved its uniqueness in the Professional world in last several years. It has
concentrated on Professional networking with career benefits compared to other social
networking websites such as Facebook and Twitter, which concentrates only on social
networking. For first 2 years, LinkedIn employed ‘Freemium’ business model under
which it provided free services to all users. Eventually, after building large member
communities, it introduced premium services and paid subscriptions and started making
revenues. As of May 6, 2015, LinkedIn offer 4 different and uniquely featured plans to
its members. These 4 plans and prices of each are explained in the following exhibit.
(Exhibit-1: Premium Service Plans provided by LinkedIn)
LinkedIn offers free service for first month to all the new subscribers for each plan and
charges the mentioned prices from second month if members decide to continue to
enroll in the plan. In addition, if the members pay the prices for the year, LinkedIn offers
additional 20% discount. For these paid services, LinkedIn offers various online tools
and techniques of which members can take advantage in job searching, recruiting,
marketing, or generating sales. Each plan is carefully designed that it gives potential
access to information profile analysis to members in their professional development.
Amongst fortune 500 companies employee, LinkedIn premium service subscriptions
have become powerful and rich possession. Prices of each plans are carefully designed
and changed according to market characteristics such that it covers the willingness to
pay level of most of the members and at same time ensure healthy profit to the company.
For Job posting, LinkedIn charges prices according to location. For instance, it charges
$499 per one job to post in New York City area. LinkedIn also provides 5-job pack and
10-job pack services. Discounts offered for 5 and 10 job packs are 16% and 30%
If we consider the cost for LinkedIn, the cost to add additional member in its network is
marginal. This cost can be easily covered by converting one user from free service to
paid service or by selling hiring/marketing solutions to enterprise customers. In addition,
LinkedIn does not need to spend lot in marketing expenses. Its community grows by the
word of mouth publicity.
A competitive advantage for LinkedIn is that it gives an access of its international
database and connects them to the global professional network. Members can view each
other’s profile through common Professional interests and interacts with each other.
LinkedIn is at the level in the market that it can charge the pricing for its global network
and largest community.
3.0 Antitrust Criteria applied to ‘LinkedIn’
Antitrust criteria are intended to restrain trusts, monopolies, or other combinations of
business and capital, with an objective to maintain and promote competition in particular
industry. ‘LinkedIn’ is a multi-sided platform company bringing two or more group of
customers who need each other but cannot capture the value from their manual attraction
on their own. Hence, customers have to rely on LinkedIn, a catalyst who facilitates
value-creating interactions between them. Following are some of the antitrust criteria
that are directly applicable to ‘LinkedIn’.
‘LinkedIn’ is facing high level of competition in last several years. Indirect network
effects have produced demand-size economies of scale, which ultimately lead to
Monopoly. Increase in the participation at one platform creates attraction in the 2nd
platform. However, in many industries such as social media do not have a big monopoly
provider and the industry is also not leaning towards monopoly. There are two reasons
behind such situations, which are Differentiated Product and Customer Patronization.
‘LinkedIn’ offers services such as professional profile management and professional
marketing. Its competitors, indeed.com, monsters.com and many others offer specialized
and differentiated services such as effective job search and Professional Resume
Management. Therefore, customers uses all these companies and services in which they
are better leading to patronizing more than one platform. For competitive constraints, if
LinkedIn increases prices of one platform, it has to make sure that the value creation to
that platform customer increases with respect to that because if the platform is less
valuable for them, there will be a less demand on that platform leading to lower demand
on other platform as the network will be less valuable to them as well. LinkedIn need to
inquire about the feedback effects of both platforms in order to analyze the interacting
effects of both platform and their magnitude.
For ‘LinkedIn’, marginal cost is not the benchmark as it is negligible. Competitive
equilibrium along with product differentiation involves prices above marginal cost.
For the pricing analysis, LinkedIn needs to consider the effects of positive feedback
between demands on the multiple sides affect competition on the side under
consideration. The analysis also needs to consider the welfare of all customer groups.
Mergers directly affect the welfare of customers on both or all platforms of merging
companies. If LinkedIn merges with its competing company than it may lead to higher
prices and monopoly in the market. However, LinkedIn is offering some basic services
free to large group of customers and it has kept offering distinguished services to the
customers. However, merger of LinkedIn with its competitor for example, indeed.com
will not substitute but complement the LinkedIn hence the merger may benefit the
customers in terms of better and effective services. However, a merger may benefit one
side of customers but and harmful on other side. Hence, the net effect of merger of
LinkedIn with other social media company can be positive or negative.
LinkedIn cannot form strategies that prevent platform entrants from achieving critical
mass (critical mass is the minimal level of demand that platforms must have on their
various sides) can therefore throw the competitors and preserve the market for predator-
LinkedIn. The usual practice of exclusionary tactics is employed, exclusive dealing,
tying and bundling, and Predatory pricing. However, the interdependent demands also
provide rationales for why these strategies can increase consumer welfare even though
they discourage entry of new competitor. It is worth noting that this welfare may last for
short period, as soon as there are no more new entrants, LinkedIn or any other company
may start charging monopoly pricing to customers.
As mentioned earlier, a multi-sided platform company should at least charge marginal
cost or less than that to any side of the platform. Indeed, LinkedIn, Google and many
other online platforms are charging nothing to one side of platform. For example,
Google charges nothing to customers who search on it. On the other hand, by employing
this pricing strategy, a firm may engage in Predatory pricing by charging less or
nothing. Obviously, LinkedIn can be considered involved in predatory pricing but the
fact is that a company providing goods and services to one side platform at prices which
do not cover their costs provides no evidence that the platform is engaged in predatory
If we consider efficiencies, multi-side platforms serve multiple groups of customers with
interdependent demands and benefit the society as a whole. By increasing demand on
one platform, a firm can increase its value to other sides through indirect network
4.0 Works cited
• David Evans and Richard Schmalensee, ‘The Antitrust Analysis of Multi-sided
• Pricing Policy, Harvard Business School, provided by Professor Kostakopolous.
• Class Notes, Professor Kosakopoulos, MBA 672 – Managerial Economics for