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Pricing Computer Services Under Alternative Control Structures: Tradeoffs and Trends

Author

Listed:
  • Sanjeev Dewan

    (School of Business Administration, George Mason University, Fairfax, Virginia 22030 and Graduate School of Management, University of California, Irvine California 92697)

Abstract

This paper extends the analysis of the long-run pricing and capacity decision problem for shared computer services by Dewan and Mendelson (1990) and makes two further contributions. First, we show that simple marginal capacity cost pricing is often optimal in the absence of private user information, and it outperforms cost recovery and profit center pricing methods. Second, we provide insights into the implications of declining computing costs on the tradeoff between capacity costs and user time. In equilibrium, expected user delay costs are bounded by capacity costs due to the substitution of cheaper information processing capacity for valuable user time.

Suggested Citation

  • Sanjeev Dewan, 1996. "Pricing Computer Services Under Alternative Control Structures: Tradeoffs and Trends," Information Systems Research, INFORMS, vol. 7(3), pages 301-307, September.
    • Handle: RePEc:inm:orisre:v:7:y:1996:i:3:p:301-307
    DOI: 10.1287/isre.7.3.301
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    Cited by:

    1. Alok Gupta & Boris Jukic & Dale O. Stahl & Andrew B. Whinston, 2011. "An Analysis of Incentives for Network Infrastructure Investment Under Different Pricing Strategies," Information Systems Research, INFORMS, vol. 22(2), pages 215-232, June.
    2. Joseph Vithayathil & Vidyanand Choudhary, 2022. "Organizational Structure for the IT Department: Profit Center or Cost Center?," Information Systems Frontiers, Springer, vol. 24(6), pages 2053-2076, December.
    3. Ross, Jeanne W. & Vitale, Michael R. & Beath, Cynthia Mathis, 1944-, 2003. "The untapped potential of IT chargeback," Working papers no. 300, Massachusetts Institute of Technology (MIT), Sloan School of Management.
    4. Wang, E. T. G., 2000. "Information and incentives in computing services supply: The effect of limited system choices," European Journal of Operational Research, Elsevier, vol. 125(3), pages 503-518, September.
    5. Sumita, Ushio & Masuda, Yasushi & Yamakawa, Shigetaka, 2001. "Optimal internal pricing and capacity planning for service facility with finite buffer," European Journal of Operational Research, Elsevier, vol. 128(1), pages 192-205, January.

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