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Competitive pricing of information goods: Subscription pricing versus pay-per-use

Author

Listed:
  • Peter C. Fishburn

    (AT&T Labs - Research, 180 Park Avenue, Florham Park, NJ 07932, USA)

  • Andrew M. Odlyzko

    (AT&T Labs - Research, 180 Park Avenue, Florham Park, NJ 07932, USA)

Abstract

We investigate the existence and implications of competitive equilibria when two firms offer the same electronic goods under different pricing policies. One charges a fixed subscription fee per period; the other charges on a per-use basis. Two models are examined when firms' marginal costs are negligible and they can revise prices periodically. Both show that competition often leads to ruinous price wars in the absence of collusion. However, stable pricing equilibria exist in special cases. The findings are robust even when customers are willing to pay a fixed-subscription premium.

Suggested Citation

  • Peter C. Fishburn & Andrew M. Odlyzko, 1999. "Competitive pricing of information goods: Subscription pricing versus pay-per-use," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 13(2), pages 447-470.
    • Handle: RePEc:spr:joecth:v:13:y:1999:i:2:p:447-470
    Note: Received: August 18, 1997; revised version: January 27, 1998
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    Citations

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    Cited by:

    1. Alegoz, Mehmet & Karaer, Özgen, 2024. "Compound effect of closing the loop and servitization in supply chains," International Journal of Production Economics, Elsevier, vol. 270(C).
    2. Christof Weinhardt & Arun Anandasivam & Benjamin Blau & Nikolay Borissov & Thomas Meinl & Wibke Michalk & Jochen Stößer, 2009. "Cloud Computing – A Classification, Business Models, and Research Directions," Business & Information Systems Engineering: The International Journal of WIRTSCHAFTSINFORMATIK, Springer;Gesellschaft für Informatik e.V. (GI), vol. 1(5), pages 391-399, October.
    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. Henner Gimpel & Daniel Rau & Maximilian Röglinger, 2018. "Understanding FinTech start-ups – a taxonomy of consumer-oriented service offerings," Electronic Markets, Springer;IIM University of St. Gallen, vol. 28(3), pages 245-264, August.
    5. Konstantinos Ladas & Stylianos Kavadias & Christoph Loch, 2022. "Product Selling vs. Pay-Per-Use Service: A Strategic Analysis of Competing Business Models," Management Science, INFORMS, vol. 68(7), pages 4964-4982, July.
    6. Sridhar Balasubramanian & Shantanu Bhattacharya & Vish V. Krishnan, 2015. "Pricing Information Goods: A Strategic Analysis of the Selling and Pay-per-Use Mechanisms," Marketing Science, INFORMS, vol. 34(2), pages 218-234, March.
    7. Arani, Hamed Vafa & Pourakbar, Morteza & Laan, Erwin van der & de Koster, René, 2023. "How to charge in servicizing: Per period or per use?," European Journal of Operational Research, Elsevier, vol. 304(3), pages 981-996.
    8. Manish Gangwar & Hemant K. Bhargava, 2023. "Pricing on‐demand services: Alternative ways of combining usage and access fees," Production and Operations Management, Production and Operations Management Society, vol. 32(1), pages 11-27, January.
    9. Boccali, Filippo & Mariani, Marcello M. & Visani, Franco & Mora-Cruz, Alexandra, 2022. "Innovative value-based price assessment in data-rich environments: Leveraging online review analytics through Data Envelopment Analysis to empower managers and entrepreneurs," Technological Forecasting and Social Change, Elsevier, vol. 182(C).
    10. Sonja Lehmann & Peter Buxmann, 2009. "Pricing Strategies of Software Vendors," Business & Information Systems Engineering: The International Journal of WIRTSCHAFTSINFORMATIK, Springer;Gesellschaft für Informatik e.V. (GI), vol. 1(6), pages 452-462, December.

    More about this item

    Keywords

    Competitive equilibria · Internet pricing · Subscription pricing · Price wars.;

    JEL classification:

    • C7 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory
    • D4 - Microeconomics - - Market Structure, Pricing, and Design
    • G2 - Financial Economics - - Financial Institutions and Services

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