Usage-based pricing of software services under competition

Ram Bala*, Scott Carr

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

15 Scopus citations

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.

Original languageEnglish (US)
Pages (from-to)204-216
Number of pages13
JournalJournal of Revenue and Pricing Management
Volume9
Issue number3
DOIs
StatePublished - May 2010
Externally publishedYes

Keywords

  • Competitive strategy
  • Game theory
  • Pricing
  • Software industry

ASJC Scopus subject areas

  • Business and International Management
  • Finance
  • Economics and Econometrics
  • Strategy and Management

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