Market segmentation and price differentiation is considered essential to improve the market efficiency of Internet access and data transport services. The market for cable Internet access exhibits a surprising lack of segmentation, despite a high degree of customer heterogeneity. This article examines the applicability of performance-contingent pricing schemes to broadband Internet access services, with long-term (rather than per-packet) statistical performance guarantees. We study two types of contingent price contracts, with rebate proportional to performance gap, and fixed rebate for below-threshold performance. We show that threshold-performance contingency pricing can increase both profits and fairness (customers who receive higher benefits pay higher effective price) relative to standard pricing. A menu of pricing schemes (allow customers to choose between standard and contingent pricing) works even better: it can increase the firm?s profit and segment the market.
Citation:
Hemant K. Bhargava, Daewon Sun, "Performance-Contingent Pricing for Broadband Services," hicss, vol. 8, pp.211b, Proceedings of the 38th Annual Hawaii International Conference on System Sciences (HICSS'05) - Track 8, 2005