Pricing Access Services

Many established industries, such as the online service industry, the telecommunications industry, or the fitness club industry, are access service industries. When using services in these industries, consumers pay for the privilege of accessing the firm's facilities but do not acquire any right to the facility itself. A firm's pricing decisions in access industries frequently come down to a simple choice among flat fee pricing, usage pricing, or two-part tariff pricing. This paper shows that service capacity and consumer usage heterogeneity are two important factors that determine a firm's optimal choice. A model is developed that incorporates these two salient characteristics shared by access industries and what determines a firm's choice among the three alternative pricing structures is studied. The analysis shows that, in the presence of consumer usage heterogeneity, service capacity mediates a firm's optimal choice in a complex, yet predictable way.