Profitable Flat-fee Pricing for Information and other Goods

Sergey Kokovin and Evgeny Zhelobodko

EERC Working Paper Series from EERC Research Network, Russia and CIS

Abstract: It is shown that supplementing any usage-based pricing with a flatt-fee scheme is profit improving when the savings from transactions costs and from deadweight loss by using flat fee exceed the additional production costs. We use a most general model, without many traditionally used assumptions including single-crossing condition, zero production costs and specific forms of the existing usage-based scheme. Our convenient reformulation of the problem enables one to classify markets, suitable for usage-based pricing only, or only for flat-fee, or for a combination of both. Interesting solution properties such as Pareto improvement, opening up of new markets, and possible need of some critical mass” of adopters of flat fee are shown. Some conclusions hold not only for a flat-fee supplement, but for any new tariff plan supplementing the existing pricing menu.

JEL-codes: D42 D82 L10 L12 L40 (search for similar items in EconPapers)
Date: 2008-11-06
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