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Optimal pricing strategies for Internet-based software dissemination

Author

Listed:
  • H Gurnani

    (Hong Kong University of Science and Technology)

  • K Karlapalem

    (Hong Kong University of Science and Technology)

Abstract

In the recent past, there have been several initiatives by major software companies, such as Microsoft, to lead the industry towards electronic software distribution. In this paper, we use a monopoly pricing model to examine the optimal pricing strategies for ‘selling’ and ‘pay-per-use’ licensing of packaged software over the Internet. Traditionally, software distribution included outright sale as well as short/long term renting. With the Internet fast becoming a prevalent mode for disseminating software, a customer can download and use software on a need-by-need basis. For the software vendor, offering the pay-per-use option to the consumer provides for a steady source of revenue and obviates the need for physical distribution, purchasing and inventory management mishaps. We examine the following issues in this paper: (i) what are the extra benefits to the software vendor for providing the pay-per-use option?; and (ii) does the market size change? The contribution of this paper is to show that pay-per-use is a viable alternative for a large number of customers, and that judicious pricing for pay-per-use is profitable for the software vendor.

Suggested Citation

  • H Gurnani & K Karlapalem, 2001. "Optimal pricing strategies for Internet-based software dissemination," Journal of the Operational Research Society, Palgrave Macmillan;The OR Society, vol. 52(1), pages 64-70, January.
    • Handle: RePEc:pal:jorsoc:v:52:y:2001:i:1:d:10.1057_palgrave.jors.2601046
    DOI: 10.1057/palgrave.jors.2601046
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    Citations

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    Cited by:

    1. Han, Lei, 2009. "Market acceptance of cloud computing: An analysis of market structure, price models and service requirements," Bayreuth Reports on Information Systems Management 42, University of Bayreuth, Chair of Information Systems Management.
    2. Ping Yan & Jun Pei & Altannar Chinchuluun, 2020. "Strategic decisions of sales and pay-per-use rentals under incomplete product availability," Journal of Global Optimization, Springer, vol. 78(4), pages 671-691, December.
    3. Dan Ma & Abraham Seidmann, 2015. "Analyzing Software as a Service with Per-Transaction Charges," Information Systems Research, INFORMS, vol. 26(2), pages 360-378, June.
    4. Choi, Tsan-Ming & Chow, Pui-Sze & Xiao, Tiaojun, 2012. "Electronic price-testing scheme for fashion retailing with information updating," International Journal of Production Economics, Elsevier, vol. 140(1), pages 396-406.

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