Pricing Strategies Must Change for Internet Access Providers
After extensively studying models of Internet pricing among competing networks, researchers at the University of Texas found that usage-based pricing can be far more profitable than the flat pricing scheme introduced by America On Line (AOL). The customer dissatisfaction with on-line congestion and pending law suits against access providers highlight the short-sightedness of this current pricing strategy.
Dale Stahl and Andrew Whinston, leading a team of graduate students, found that Americans value time and are willing to pay for a guaranteed level of service to avoid wasting time. There is, therefore, a tremendous profit opportunity for some enterprising Internet access provider who recognizes this consumer trait. Reduce the fixed fees and instead charge for usage that varies with the demand (peak and off-peak rates, for instance). People who set a high value on time will prefer your service over the uncontrolled congestion offered by others.
While one Internet access provider obviously cannot control the congestion at other nodes of the network, say Stahl and Whinston, he can control the congestion at his access point. It is only a matter of time before AOLÃs experience with angry customers becomes more common and the public begins to demand more efficient management of the entire Internet. In a free economy such as ours, no industry can make profits without bowing to the forces of supply and demand.
Contact: Andrew Whinston, 512/471-8879 or [email protected], for further information, visit the Center for Information Systems Management at http://cism.bus.utexas.edu
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