Pricing under quality of service uncertainty: Market segmentation via statistical QoS guarantees
This article examines how performance-contingent pricing schemes with long-term statistical performance guarantees can be applied to many IT services. We study two forms of performance-contingent pricing, with rebate proportional to failure rate 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. But an even better solution is to offer a menu of performance guarantees: this can increase the firm's profit and segment the market. Only service providers whose performance level is sufficiently better than the industry standard can benefit from this pricing mechanism.
Year of publication: |
2008
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Authors: | Bhargava, Hemant K. ; Sun, Daewon |
Published in: |
European Journal of Operational Research. - Elsevier, ISSN 0377-2217. - Vol. 191.2008, 3, p. 1189-1204
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Publisher: |
Elsevier |
Saved in:
Online Resource
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