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Profitable Flat-fee Pricing for Information and other Goods

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  • Kokovin Sergey
  • Zhelobodko Evgeniy

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.

Suggested Citation

  • Kokovin Sergey & Zhelobodko Evgeniy, 2008. "Profitable Flat-fee Pricing for Information and other Goods," EERC Working Paper Series 08/04e, EERC Research Network, Russia and CIS.
    • Handle: RePEc:eer:wpalle:08/04e
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    References listed on IDEAS

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    1. Andersson, Tommy, 2005. "Profit maximizing nonlinear pricing," Economics Letters, Elsevier, vol. 88(1), pages 135-139, July.
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    More about this item

    JEL classification:

    • D42 - Microeconomics - - Market Structure, Pricing, and Design - - - Monopoly
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General
    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
    • L40 - Industrial Organization - - Antitrust Issues and Policies - - - General

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