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Please use this identifier to cite or link to this item:
http://hdl.handle.net/2451/14145
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| Title: | Non-linear pricing of information goods |
| Authors: | Sundararajan, Arun |
| Issue Date: | Jan-2002 |
| Publisher: | Stern School of Business, New York University |
| Series/Report no.: | IS-02-01 |
| Abstract: | This paper analyzes optimal pricing for information goods under
incomplete information, when both unlimited-usage (fixed-fee) pricing
and usage-based pricing are feasible. For a general set of customer
characteristics, it is shown that in the presence of contract
administration costs, offering fixed-fee pricing in addition to a
non-linear usage-based pricing scheme is always profit-improving, and
there may be markets in which a pure fixed-fee is optimal. Moreover, it
is proved that the optimal usage-based pricing schedule is independent
of the value of the fixed-fee. These results imply that the optimal
pricing strategy is never fully revealing. A procedure for determining
the optimal combination of fixed-fee and non-linear usage-based
contracts is presented. Applying these general results to specific:
business contexts suggests a number of operiG tional guidelines for
designing pricing schedules, and managerial insights for setting pricing
policy. For instance, in nascent information markets, firms are most
likely to profit from low fixed-fee penetration pricing, but as these
markets mature, the optimal pricing mix should expand to include a wider
range of usage-based pricing options. The effects of changes in product
value and administration costs on the adoption levels of different
pricing schemes, optimal quantity discounts, firm profitability and
total welfare are analyzed. Strategic pricing responses to changes in
market characteristics are described, and the implications of the
paper's results for bundling and vertical differentiation of information
goods are discussed. |
| URI: | http://hdl.handle.net/2451/14145 |
| Appears in Collections: | IOMS: Information Systems Working Papers
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