Investigating pricing solutions to combat spam: Postage stamp and bonded senders

E-mail is a powerful communication tool for marketers. Unfortunately, the efficacy of this tool is rapidly being eroded by spam. In response, one option now in play for legitimate marketers is to subscribe to services that charge postage for delivery of e-mail. This solution is consistent with economic theory and essentially amounts to a tax to reduce the supply of unwanted communications. However, it fails to harness the unique nature of the e-mail communication medium- namely, its "interactivity." A solution that utilizes the interactivity of the e-mail medium, but less commonly known, is bonded senders. It involves the posting of a bond with an intermediary that is forfeited if the recipient identifies the e-mail as an unwanted communication. Given the emergence of these two distinct pricing solutions, we ask: (1) What are the essential characteristics of each pricing solution? (2) Which pricing solution is superior? and (3) Is it sustainable without regulation? Our analytical findings reveal that the bonded senders solution dominates the postage stamp solution. Specifically, it allows marketers in more categories to participate and yields greater profit to each marketer. Surprisingly, despite offering these benefits to marketers, it also results in a lower amount of unwanted communications. Finally, incorporating the notion of rational expectations, we also find that only bonded senders emerge as a solution that is self-enforcing. Our analytical findings thus give pause to pure postage-type mechanisms but encourage investments in the bonded senders mechanism.