Pricing of wireless services: Service pricing vs. Traffic pricing

Atanu Lahiri, Rajiv M. Dewan, Marshall Freimer

Research output: Contribution to journalArticlepeer-review

15 Scopus citations

Abstract

As the ability to measure technology resource usage gets easier with increased connectivity, the question whether a technology resource should be priced by the amount of the resource used or by the particular use of the resource has become increasingly important. We examine this issue in the context of pricing of wireless services: should the price be based on the service, e.g., voice, multimedia messages, short messages, or should it be based on the traffic generated?. Many consumer advocates oppose discriminatory pricing across services believing that it enriches carriers at the expense of consumers. The opposition to discrimination has grown significantly, and it has even prompted the U.S. Congress to question executives of some of the biggest carriers. With this ongoing debate on discrimination in mind, we compare two pricing regimes here. One regime, namely, service pricing, involves pricing different services differently. The other one, namely, traffic pricing, involves pricing the traffic (i.e., bytes) transmitted. We show why the common wisdom, that discriminatory pricing across services increases profits and harms consumers, may not always hold. We also show that such discrimination can increase social welfare.

Original languageEnglish (US)
Pages (from-to)418-435
Number of pages18
JournalInformation Systems Research
Volume24
Issue number2
DOIs
StatePublished - Jun 2013
Externally publishedYes

Keywords

  • Dumb pipe
  • Net neutrality
  • Nonlinear pricing
  • Quasi-bundling
  • Second-degree discrimination
  • Telecommunication

ASJC Scopus subject areas

  • Management Information Systems
  • Information Systems
  • Computer Networks and Communications
  • Information Systems and Management
  • Library and Information Sciences

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