Usage-based pricing of software services under competition

Bala, R and Carr, S (2010) Usage-based pricing of software services under competition. Journal of Revenue and Pricing Management, 9 (3). pp. 204-216.

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Abstract

With the emergence of high speed networks, software firms have the ability to deploy software as a service and measure resource usage at the level of individual customers. This enables the implementation of usage-based pricing. We study both fixed and usage-based pricing schemes in a competitive setting where the firm incurs a transaction cost of monitoring usage if it implements usage-based pricing. Offering different pricing schemes helps to differentiate the firms and relax price competition, particularly at higher monitoring costs, even when competing firms offer the same service quality. However, the low usage customers acquired by offering usage-based pricing are unable to compensate for the monitoring costs incurred. This implies that managers should be cautious about implementing usage-based pricing in a competitive setting. © 2010 Macmillan Publishers Ltd.

ISB Creators:
ISB CreatorsORCiD
Bala, RUNSPECIFIED
Item Type: Article
Uncontrolled Keywords: Competitive strategy; Game theory; Pricing; Software industry
Subjects: Business and Management
Depositing User: LRC ISB
Date Deposited: 29 Oct 2014 04:20
Last Modified: 29 Oct 2014 04:20
URI: http://eprints.exchange.isb.edu/id/eprint/51
Publisher URL: http://dx.doi.org/10.1057/rpm.2010.12
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