Competitive pricing of information goods: Subscription pricing versus pay-per-use

Summary.

We investigate the existence and implications of competitive equilibria when two firms offer the same electronic goods under different pricing policies. One charges a fixed subscription fee per period; the other charges on a per-use basis. Two models are examined when firms' marginal costs are negligible and they can revise prices periodically. Both show that competition often leads to ruinous price wars in the absence of collusion. However, stable pricing equilibria exist in special cases. The findings are robust even when customers are willing to pay a fixed-subscription premium.