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On the Optimality of Fixed-up-to Tariff for Telecommunications Service

Author

Listed:
  • Yasushi Masuda

    (Faculty of Science and Technology, Keio University, Yokohama 223-8622, Japan)

  • Seungjin Whang

    (Graduate School of Business, Stanford University, 518 Memorial Way, Stanford, California 94305-5015)

Abstract

A tariff is the total charge payable by a customer for services provided. We study the design of tariffs for a telecommunications service provider. We develop an economic model that captures the negative externalities of the network and the diversity of customers. The tariff is designed so that it reflects the expected response of different customers and the system congestion it would induce. We study a simple tariff structure in wide use by mobile phone carriers---a menu of “fixed-up-to (FUT)” plans like “fixed access fee $35 up to 300 minutes, and $0.40 per minute beyond the limit.” We derive the optimal menu of FUT plans and show that such a simple FUT menu structure delivers as good performance to the monopolistic carrier as any nonlinear pricing schedule.

Suggested Citation

  • Yasushi Masuda & Seungjin Whang, 2006. "On the Optimality of Fixed-up-to Tariff for Telecommunications Service," Information Systems Research, INFORMS, vol. 17(3), pages 247-253, September.
    • Handle: RePEc:inm:orisre:v:17:y:2006:i:3:p:247-253
    DOI: 10.1287/isre.1060.0097
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    References listed on IDEAS

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    Cited by:

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    2. Ke-Wei Huang & Arun Sundararajan, 2011. "Pricing Digital Goods: Discontinuous Costs and Shared Infrastructure," Information Systems Research, INFORMS, vol. 22(4), pages 721-738, December.
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    4. Atanu Lahiri & Rajiv M. Dewan & Marshall Freimer, 2013. "Pricing of Wireless Services: Service Pricing vs. Traffic Pricing," Information Systems Research, INFORMS, vol. 24(2), pages 418-435, June.
    5. Philipp Afèche & Opher Baron & Joseph Milner & Ricky Roet-Green, 2019. "Pricing and Prioritizing Time-Sensitive Customers with Heterogeneous Demand Rates," Operations Research, INFORMS, vol. 67(4), pages 1184-1208, July.
    6. Pnina Feldman & Ella Segev, 2022. "The Important Role of Time Limits When Consumers Choose Their Time in Service," Management Science, INFORMS, vol. 68(9), pages 6666-6686, September.
    7. Gérard P. Cachon & Pnina Feldman, 2011. "Pricing Services Subject to Congestion: Charge Per-Use Fees or Sell Subscriptions?," Manufacturing & Service Operations Management, INFORMS, vol. 13(2), pages 244-260, June.
    8. Adib Bagh & Hemant K. Bhargava, 2013. "How to Price Discriminate When Tariff Size Matters," Marketing Science, INFORMS, vol. 32(1), pages 111-126, August.
    9. Chen, Yi-Ting & Sun, Edward W. & Lin, Yi-Bing, 2020. "Merging anomalous data usage in wireless mobile telecommunications: Business analytics with a strategy-focused data-driven approach for sustainability," European Journal of Operational Research, Elsevier, vol. 281(3), pages 687-705.
    10. Ying-Ju Chen & Ke-Wei Huang, 2016. "Pricing Data Services: Pricing by Minutes, by Gigs, or by Megabytes per Second?," Information Systems Research, INFORMS, vol. 27(3), pages 596-617.
    11. Basu, Sumanta & Chakraborty, Soumyakanti & Sharma, Megha, 2015. "Pricing cloud services—the impact of broadband quality," Omega, Elsevier, vol. 50(C), pages 96-114.
    12. Limbach, Felix, 2014. "Cooperative service provisioning with OTT players: An explorative analysis of telecommunication business models," 25th European Regional ITS Conference, Brussels 2014 101388, International Telecommunications Society (ITS).
    13. Vidyanand Choudhary, 2010. "Use of Pricing Schemes for Differentiating Information Goods," Information Systems Research, INFORMS, vol. 21(1), pages 78-92, March.

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