Pricing Services Online, Economics of
Firms deliver a variety of services online, ranging from content, software and banking to entertainment and networking. This article examines a firm’s pricing decision for online services. It first discusses how a firm’s decision of pricing services online differs from offline pricing decisions. It then discusses how firms can price services online. It examines the firm’s choice between ‘fee’ or ‘free’ revenue models. It then turns to a firm’s decision on its pricing structure. This includes the decision whether to sell or to rent, and the choice between pricing plans (e.g. pay-per-use, flat-rate tariffs or more complicated multi-part tariffs) or bundling. Lastly, it turns to the role of pricing in new product adoption.
The author thanks Gregory Crawford and Bernd Skiera for their comments.
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