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

We investigate the existence and implications of competitive equilibria whe n two firms offer the same electronic goods under different pricing policie s. 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 negli gible and they can revise prices periodically. Both show that competition o ften leads to ruinous price wars in the absence of collusion. However, stab le pricing equilibria exist in special cases. The findings are robust even when customers are willing to pay a fixed-subscription premium.