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Article
Usage-based pricing of software services under competition
Operations Management & Information Systems
  • Ram Bala, Santa Clara University
  • Scott Carr
Document Type
Article
Publication Date
5-1-2010
Publisher
Palgrave Macmillan
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.

Comments
This is a post-peer-review, pre-copyedit version of an article published in Journal of Revenue and Pricing Management. The definitive publisher-authenticated version: Bala, Ram, and Scott Carr. "Usage-based Pricing of Software Services under Competition." Journal of Revenue and Pricing Management J Revenue Pricing Manag 9.3 (2010): 204-16. is available online at doi:10.1057/rpm.2010.12.
Citation Information
Bala, Ram, and Scott Carr. "Usage-based Pricing of Software Services under Competition." Journal of Revenue and Pricing Management J Revenue Pricing Manag 9.3 (2010): 204-16.