Internet service pricing: Flat or volume?

Jeonghoon Mo, Weonseek Kim, Hosung Park

Research output: Contribution to journalArticle

5 Citations (Scopus)

Abstract

In this paper, we study the pricing of Internet services under monopoly and duopoly environments using an analytic model in which a service provider and users try to maximize their respective payoffs. We compare a few popular pricing schemes, including flat, volume-based, two-part, and nonlinear tariffs, with respect to revenue, social welfare, and user surplus. We perform a study of the sensitivity of these schemes to the estimation errors. In the duopoly situation, we formulate a simple normal form game between two service providers and study their equilibrium behaviors. Our main findings include: (1) the flat pricing generates higher revenue than the pure volume pricing when the elasticity of demand is low; (2) the volume-based pricing is better for society and users than the flat pricing regardless of the elasticity; (3) the market is segmented into two when one provider provides flat pricing and another provides volume based pricing.

Original languageEnglish
Pages (from-to)298-325
Number of pages28
JournalJournal of Network and Systems Management
Volume21
Issue number2
DOIs
Publication statusPublished - 2013 Jun 1

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All Science Journal Classification (ASJC) codes

  • Information Systems
  • Hardware and Architecture
  • Computer Networks and Communications
  • Strategy and Management

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