On the Optimality of Fixed-up-to Tariff for Telecommunications Service

Yasushi Masuda () and Seungjin Whang ()
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Yasushi Masuda: Faculty of Science and Technology, Keio University, Yokohama 223-8622, Japan
Seungjin Whang: Graduate School of Business, Stanford University, 518 Memorial Way, Stanford, California 94305-5015

Information Systems Research, 2006, vol. 17, issue 3, 247-253

Abstract: A tariff is the total charge payable by a customer for services provided. We study the design of tariffs for a telecommunications service provider. We develop an economic model that captures the negative externalities of the network and the diversity of customers. The tariff is designed so that it reflects the expected response of different customers and the system congestion it would induce. We study a simple tariff structure in wide use by mobile phone carriers---a menu of “fixed-up-to (FUT)” plans like “fixed access fee $35 up to 300 minutes, and $0.40 per minute beyond the limit.” We derive the optimal menu of FUT plans and show that such a simple FUT menu structure delivers as good performance to the monopolistic carrier as any nonlinear pricing schedule.

Keywords: tariff design; queuing delays; nonlinear pricing; menu of plans (search for similar items in EconPapers)
Date: 2006
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Citations: View citations in EconPapers (13)

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