Title: Optimal Pricing Scheme for Information Services
Abstract: This paper examines which, among three commonly used pricing schemes: the flat-fee, pure usage-based and the two-part tariff pricing, is optimal for a monopolist providing information services. Our analysis suggests that under zero marginal costs and monitoring costs, when customers are homogeneous or when customers have heterogeneous marginal willingness to pay (which corresponds to different downward sloping demand curves), flat-fee pricing and two-part tariff pricing always achieve the same profit level, and dominate usage based pricing. However, when customers are characterized by heterogeneous maximum consumption levels (or usage levels), the two part tariff pricing is the most profitable among the three. We also examine how sensitive the optimal pricing scheme is to marginal costs and monitoring costs. Our analysis shows that when marginal cost is below a certain value, the flat fee pricing is the optimal scheme regardless how large or how small monitoring cost is (as long as it’s positive) when customers are homogeneous or have heterogeneous marginal willingness to pay. But as monitoring cost becomes zero, the two-part tariff will also become one of the optimal pricing schemes.
Publication Year: 2002
Publication Date: 2002-01-01
Language: en
Type: article
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Cited By Count: 11
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