Due to advances in technology and the rapid growth of online service offerings, various innovative web-based service models and delivery methods have appeared—including several free services. It is not always clear whether and how these emerging mechanisms for online service delivery will result in profitable businesses. In this paper, with an eye towards beginning to understand the issues involved, we present an analytical model of rational customer choice between available service plans. In particular, our model predicts how a monopoly service provider should devise its plans, if it understands such customer behavior. We then describe how this model would need to be extended in order to reflect increasingly inexpensive and even free service offerings.
[1]
K. Eisenhardt.
Agency Theory: An Assessment and Review
,
1989
.
[2]
Bengt Holmstrom,et al.
Moral Hazard and Observability
,
1979
.
[3]
Stephen L. Vargo,et al.
Evolving to a New Dominant Logic for Marketing
,
2004
.
[4]
C. Anderson,et al.
Free: The Future of a Radical Price
,
2009
.
[5]
Eleni Stroulia,et al.
Business Models in Emerging Online Services
,
2009,
AMCIS.
[6]
C. Shapiro,et al.
Network Externalities, Competition, and Compatibility
,
1985
.
[7]
M. Rappa.
Business Models on the Web
,
2008
.