scholarly journals Welfare and research and development incentive effects of uniform and differential pricing schemes

2021 ◽  
Author(s):  
Giorgio Gnecco ◽  
Fabio Pammolli ◽  
Berna Tuncay
Keyword(s):  
Research And Development ◽  
Marginal Cost ◽  
Optimization Problems ◽  
Parallel Trade ◽  
Uniform Pricing ◽  
Pricing Scheme ◽  
Global Welfare ◽  
Distribution Chain ◽  
Differential Pricing ◽  
Pricing Schemes

AbstractThis paper is about the application of optimization methods to the analysis of three pricing schemes adopted by one manufacturer in a two-country model of production and trade. The analysis focuses on pricing schemes—one uniform pricing scheme, and two differential pricing schemes—for which there is no competition coming from the so-called parallel trade. This term denotes the practice of buying a patented product like a medicine in one market at one price, then re-selling it in a second so-called gray market at a higher price, on a parallel distribution chain where it competes with the official distribution chain. The adoption of pricing schemes under which parallel trade does not arise can prevent the occurrence of its well-documented negative effects. In the work, a comparison of the optimal solutions to the optimization problems modeling the three pricing schemes is performed. More specifically, conditions are found under which the two differential pricing schemes are more desirable from several points of view (e.g., incentive for the manufacturer to do Research and Development, product accessibility, global welfare) than the uniform pricing scheme. In particular, we prove that, compared to the uniform pricing scheme, the two differential pricing schemes increase the incentive for the manufacturer to invest in Research and Development. We also prove that they serve both countries under a larger range of values for the relative market size, making the product more accessible to consumers in the lower price country. Moreover, we provide a sufficient condition under which price discrimination is more efficient from a global welfare perspective than uniform pricing. The analysis applies in particular to the case of the European Single Market for medicines. Compared to other studies, our work takes into account also the possible presence in all the optimization problems of a positive constant marginal cost of production, showing that it can have non-negligible effects on the results of the analysis. As an important contribution, indeed, our analysis clarifies the conditions—which have been overlooked in the literature about the mechanisms adopted to prevent parallel trade occurrence—that allow/do not allow one to neglect the presence of this factor. Such conditions are related, e.g., to the comparison between the positive constant marginal cost of production, the parallel trade cost per-unit, and the maximal price that can be effectively charged to the consumers in the lower price country.

scholarly journals Mixed integer nonlinear programming (MINLP)-based bandwidth utility function on internet pricing scheme with monitoring and marginal cost

2019 ◽  
Vol 9 (2) ◽  
pp. 1240
Author(s):  
Robinson Sitepu ◽  
Fitri Maya Puspita ◽  
Elika Kurniadi ◽  
Yunita Yunita ◽  
Shintya Apriliyani
Keyword(s):  
Utility Function ◽  
Marginal Cost ◽  
Optimization Problems ◽  
Linear Optimization ◽  
Optimal Solution ◽  
Mixed Integer ◽  
Monitoring Cost ◽  
Internet Pricing ◽  
Pricing Scheme ◽  
Linear Optimization Problems

<span>The development of the internet in this era of globalization has increased fast. The need for internet becomes unlimited. Utility functions as one of measurements in internet usage, were usually associated with a level of satisfaction of users for the use of information services used. There are three internet pricing schemes used, that are flat fee, usage based and two-part tariff schemes by using one of the utility function which is Bandwidth Diminished with Increasing Bandwidth with monitoring cost and marginal cost. Internet pricing scheme will be solved by LINGO 13.0 in form of non-linear optimization problems to get optimal solution. The optimal solution is obtained using the either usage-based pricing scheme model or two-part tariff pricing scheme model for each services offered, if the comparison is with flat-fee pricing scheme. It is the best way for provider to offer network based on usage based scheme. The results show that by applying two part tariff scheme, the providers can maximize its revenue either for homogeneous or heterogeneous consumers.</span>

Scalable Intra and Inter Domain IPv6 QoS Management and Pricing Scheme

2010 ◽  
pp. 256-279
Author(s):  
El-Bahlul Fgee ◽  
Shyamala Sivakumar ◽  
William J. Phillips ◽  
William Robertson
Keyword(s):  
Traffic Flow ◽  
Dynamic Pricing ◽  
Pricing Strategy ◽  
Traffic Flows ◽  
Lower Priority ◽  
Qos Management ◽  
Management Scheme ◽  
Pricing Scheme ◽  
End To End ◽  
Pricing Schemes

Network multimedia applications constitute a large part of Internet traffic and guaranteed delivery of such traffic is a challenge because of their sensitivity to delay, packet loss and higher bandwidth requirement. The need for guaranteed traffic delivery is exacerbated by the increasing delay experienced by traffic propagating through more than one QoS domain. Hence, there is a need for a flexible and a scalable QoS manager that handles and manages the needs of traffic flows throughout multiple IPv6 domains. The IPv6 QoS manager, presented in this paper, uses a combination of the packets’ flow ID and the source address (Domain Global Identifier (DGI)), to process and reserve resources inside an IPv6 domain. To ensure inter-domain QoS management, the QoS domain manager should also communicate with other QoS domains’ managers to ensure that traffic flows are guaranteed delivery. In this scheme, the IPv6 QoS manager handles QoS requests by either processing them locally if the intended destination is located locally or forwards the request to the neighboring domain’s QoS manager. End-to-end QoS is achieved with an integrated admission and management unit. The feasibility of the proposed QoS management scheme is illustrated for both intra- and inter-domain QoS management. The scalability of the QoS management scheme for inter-domain scenarios is illustrated with simulations for traffic flows propagating through two and three domains. Excellent average end-to-end delay results have been achieved when traffic flow propagates through more than one domain. Simulations show that packets belonging to non-conformant flows experience increased delay, and such packets are degraded to lower priority if they exceed their negotiated traffic flow rates. Many pricing schemes have been proposed for QoS-enabled networks. However, integrated pricing and admission control has not been studied in detail. A dynamic pricing model is integrated with the IPv6 QoS manager to study the effects of increasing traffic flows rates on the increased cost of delivering high priority traffic flows. The pricing agent assigns prices dynamically for each traffic flow accepted by the domain manager. Combining the pricing strategy with the QoS manager allows only higher priority traffic packets that are willing to pay more to be processed during congestion. This approach is flexible and scalable as end-to-end pricing is decoupled from packet forwarding and resource reservation decisions. Simulations show that additional revenue is generated as prices change dynamically according to the network congestion status.

scholarly journals Un-Vignetting vignettes

Pomorstvo ◽  
2017 ◽  
Vol 31 (1) ◽  
pp. 60-66
Author(s):  
Davor Mance
Keyword(s):  
Opportunity Cost ◽  
Primary Source ◽  
Sunk Costs ◽  
Opportunity Costs ◽  
Marginal Costs ◽  
Pricing Scheme ◽  
Pareto Efficient ◽  
Differential Pricing ◽  
Optimal Quantity ◽  
Economic Criteria

In the art of photography, the phenomenon of vignetting means blurring of an image at its periphery compared to its centre. Vignettes are a form of road pricing independent of travel distance. Their usage in Croatia was recently rejected while in Europe, the number of countries using them, is increasing. The economic question of using vignettes as a primary source of revenue for the financing of Croatian highways was blurred by economically peripheral but politically sensitive welfare transfer issues. There has been no visible attempt to push the discussion back into the field of economics by using purely economic criteria such as: opportunity cost of usage, “sunk costs”, marginal costs, and total costs recovery. The paper aims at un-vignetting (un-blurring) the issue and re-focusing it towards economic arguments. The approach taken is a deductive-nomological argument based on opportunity costs of usage. The conclusion is straightforward: the vignettes are Pareto efficient since they make the society in general and the consumers in particular ultimately better off even after taking into account compensations. The opportunity costs of usage of congestion-free roads are zero. The optimal quantity-dependent price is then also zero. Since zero price does not recover costs, a differential pricing scheme needs to be put in place: one that does not depend on distance travelled.

The Economics of the Biopharmaceutical Industry

2011 ◽  
pp. 519-554 ◽  
Author(s):  
Patricia M. Danzon
Keyword(s):  
Pharmaceutical Industry ◽  
Research And Development ◽  
Future Research ◽  
Neglected Diseases ◽  
Market Demand ◽  
Global Issues ◽  
Insurance Reimbursement ◽  
Development Costs ◽  
The Us ◽  
Differential Pricing

This article summarizes the literature, and considers the issue of paying for research and development. It reviews research and development costs, regulation, productivity and incentives for innovation. It discusses market demand and pricing, effects of insurance, reimbursement regulation, alternatives to patents, and generics. Further, it reviews trends in promotion, regulation of promotion and its effects. It discusses global issues, including differential pricing and R&D for neglected diseases. The focus is on the US, as the home of the largest number of multinational pharmaceutical and smaller biotech companies. This article notes the important differences in regulatory and reimbursement systems in other countries. Finally it suggests that although there is large and growing literature on the pharmaceutical industry that has produced valuable information, important issues remain for future research.

scholarly journals The costs of icebreaking services: an estimation based on Swedish data

2020 ◽  
Vol 19 (1) ◽  
pp. 125-142 ◽  
Author(s):  
Eva Lindborg ◽  
Peter Andersson
Keyword(s):  
Marginal Cost ◽  
Fixed Costs ◽  
External Effects ◽  
Marginal Costs ◽  
Advantages And Disadvantages ◽  
The Social ◽  
The Usa ◽  
The Cost ◽  
Pricing Schemes ◽  
Swedish Data

AbstractIn winter, the sea around Sweden and Finland as well as parts of the waters around Canada, Russia and the USA become ice covered, and ships may require assistance from icebreakers to proceed to their destinations. This paper accordingly analyses the cost structure and estimates the cost of icebreaking operations at sea, including the costs of external effects of the icebreakers’ emissions, and analyses the consequences of different pricing schemes for financing icebreaking services. A regression analysis was carried out based on data from icebreaking services in Sweden over 14 winters from 2001/2002 to 2015/2016. The social marginal cost of an average assistance operation (which may involve more than one ship) is estimated at EUR 6476 and for each assisted ship EUR 5304. The same cost is EUR 907 per running hour for the icebreakers and EUR 1990 per hour a ship is assisted. Each additional nautical mile sailed by an icebreaker costs society EUR 141 and each assisted nautical mile EUR 234. The marginal cost is found not to be related to winter severity. Despite the significant social marginal costs, not including large fixed costs, icebreaking in Sweden and Finland is free of charge. The advantages and disadvantages of four pricing models that can be applied to cover at least parts of the costs to society are discussed. All models could create new distortions, but a price per assisted hour may be worth applying in practice.

When to Lock the Volatile Input Price? Procurement of Commodity Components Under Different Pricing Schemes

2021 ◽  
Author(s):  
Shi Chen ◽  
Junfei Lei ◽  
Kamran Moinzadeh
Keyword(s):  
Supply Chain ◽  
Problem Definition ◽  
Optimization Approach ◽  
Input Price ◽  
Standard Contract ◽  
Ordering Policy ◽  
Pricing Scheme ◽  
Market Driven ◽  
The Cost ◽  
Pricing Schemes

Problem definition: We study a two-stage supply chain, where the supplier procures a key component to manufacture a product and the buyer orders from the supplier to meet a price-sensitive demand. As the input price is volatile, the two parties enter into either a standard contract, where the buyer orders just before the supplier starts production, or a time-flexible contract, where the buyer can lock a wholesale price in advance. Moreover, we consider three selling-price schemes: Market Driven, Cost Plus, and Profit Max. Academic/practical relevance: This problem is motivated by real practices in the cloud industry. Our model and optimization approach can address similar problems in other industries as well. Methodology: We assume that the input price follows a geometric Brownian motion. To determine the optimal ordering time, we propose an optimization approach that is different from the classic approach by Dixit et al. ( 1994 ) and Li and Kouvelis ( 1999 ). Our approach leads to deeper analytical results and more transparent ordering policy. Through a numerical experimentation, we compare profitability of different parties under different contracts, pricing schemes, and market conditions. Results: The buyer’s ordering policy is determined by a threshold policy based on the current time and input price; the optimal threshold depends on not only the drift and volatility of the input price but also, their relative magnitude. The supplier’s optimal procurement time should be determined by analyzing a trade-off between the holding cost of storing the components and the future input-price movement. Managerial implications: Under the Profit-Max and the Cost-Plus pricing schemes, the time-flexible contract is a Pareto improvement compared with the standard contract, whereas under the Market-Driven pricing scheme, the supplier may be better off under the standard contract. Moreover, although the most favorable scenario for the buyer is under the Profit-Max pricing scheme, the most favorable scenario for the supplier oftentimes is under the Cost-Plus pricing scheme. Furthermore, this study provides valuable insights into impacts of various characteristics of the component market, such as the trend and volatility of the input price, on the expected profit of the supply chain and its split between the two parties.

scholarly journals Cloud Services and Pricing Strategies for Sustainable Business Models: Analytical and Numerical Approaches

2019 ◽  
Vol 12 (1) ◽  
pp. 49 ◽  
Author(s):  
Se-Hak Chun
Keyword(s):  
Social Welfare ◽  
Business Models ◽  
Service Providers ◽  
Cloud Services ◽  
Pricing Strategies ◽  
Sustainable Business ◽  
Pricing Scheme ◽  
Subscription Pricing ◽  
Theoretical And Numerical Analysis ◽  
Pricing Schemes

Previous studies have introduced different potential pricing strategies for cloud services. However, not much research has been done comparing subscription pricing and pay-per-use pricing, which are commonly used pricing schemes. Also, there are very few studies which analyze a two-part tariff pricing scheme for cloud services, even though this option may increasingly attract service providers as the cloud market becomes more competitive and the profit margin grows narrower. Previous research has focused on firms’ profitability rather than social welfare due to the limitations of free services. This study uses theoretical and numerical analysis to compare the social welfare and profitability of three pricing schemes commonly used by firms: subscription pricing, pay-per-use pricing, and two-part tariff pricing. It shows that the pay-per-use pricing is the best solution from the perspective of social welfare, which contrasts with the conclusion of a previous study stating that social welfare is maximized under a two-part tariff. This paper also shows that the two-part tariff is the most profitable pricing scheme for firms.

Real-Time Differential Pricing Scheme for Active Consumers with Electric Vehicles

2017 ◽  
Vol 45 (14) ◽  
pp. 1487-1497 ◽  
Author(s):  
Kumarsinh Jhala ◽  
Balasubramaniam Natarajan ◽  
Anil Pahwa ◽  
Larry Erickson
Keyword(s):  
Real Time ◽  
Electric Vehicles ◽  
Pricing Scheme ◽  
Time Differential ◽  
Differential Pricing

Flexible and Committed Advertising Contracts in Electronic Retailing

2020 ◽  
Vol 31 (2) ◽  
pp. 323-339
Author(s):  
Dengpan Liu ◽  
Subodha Kumar ◽  
Vijay S. Mookerjee
Keyword(s):  
Advertising Campaign ◽  
Electronic Retailing ◽  
Operational Costs ◽  
Optimal Value ◽  
Advertising Spending ◽  
Differential Pricing ◽  
Pricing Schemes

Many advertising agents offer flexible advertising contracts wherein firms have the flexibility of adjusting their level of advertising during the advertising campaign, whereas some agents also offer committed contracts wherein firms do not have this flexibility. Based on our analysis, we would recommend that e-retailing firms choose the flexible contracts, which give them the flexibility of adjusting their advertising spending during the advertising campaign and make them better off. We also send a clear message to e-retailers that their leverage of engaging in flexible competition is contingent on the size of their operational costs. In particular, as operational costs decrease, they should be more mindful of engaging in the flexible competition. However, from the standpoint of advertising agents (e.g., Facebook.com ), because firms’ advertising efforts are lower in flexible than committed competition, we would recommend that the advertising agents adopt differential pricing schemes under the two modes of competition. In particular, the agents need to offer discounts to the e-retailers signing flexible advertising contracts so as to step up the advertising competition. In addition, our findings also provide the advertising agents with guidance on how to determine the optimal value for the discounts to be offered.

Sign in / Sign up

Export Citation Format

Share Document