PRICING COMPUTER SERVICES UNDER ALTERNATIVE CONTROL-STRUCTURES - TRADEOFFS AND TRENDS

This paper extends the analysis of the long-run pricing and capacity d ecision problem for shared computer services by Dewan and Mendelson (1 990) and makes two further contributions. First, we show that simple m arginal capacity cost pricing is often optimal in the absence of priva te user information, and it outperforms cost recovery and profit cente r pricing methods. Second, we provide insights into the implications o f declining computing costs on the tradeoff between capacity costs and user time. In equilibrium, expected user delay costs are bounded by c apacity costs due to the substitution of cheaper information processin g capacity for valuable user time.