Pricing of Wireless Services: Service Pricing vs. Traffic Pricing

Atanu Lahiri (), Rajiv M. Dewan () and Marshall Freimer ()
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Atanu Lahiri: Michael G. Foster School of Business, University of Washington, Seattle, Washington 98195
Rajiv M. Dewan: William E. Simon Graduate School of Business Administration, University of Rochester, Rochester, New York 14627
Marshall Freimer: William E. Simon Graduate School of Business Administration, University of Rochester, Rochester, New York 14627

Information Systems Research, 2013, vol. 24, issue 2, 418-435

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.

Keywords: nonlinear pricing; second-degree discrimination; quasi-bundling; telecommunication; net neutrality; dumb pipe (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (6)

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