1. Efficient Pricing of Geomarketing Internet Services European vs. American Approach Alenka Krek Technical University of Vienna Department of Geoinformation krek@geoinfo.tuwien.ac.at

2. Overview Geomarketing service Pareto efficiency Marginal cost pricing Nonlinear pricing European vs. American approach Conditions for the efficient nonlinear pricing 6th EC GI & GIS 2000, Lyon, France

3. Geomarketing Service Geomarketing service is a service of providing geomarketing information to the user. Geomarketing information is information which enables the user to take better and faster decisions about sales activities. 6th EC GI & GIS 2000, Lyon, France

4. statistic demographic geographic Geomarketing Datasets Internal company’s data are combined with external statistic, demographic and geographic data. 6th EC GI & GIS 2000, Lyon, France

5. Geomarketing Service Provider 6th EC GI & GIS 2000, Lyon, France The service provider has to decide about: Product: the Geoinformation product Medium of delivery Price Motivation: How to set an efficient price for geoinformation services?

6. Pareto Efficiency The situation is Pareto efficient if there is no way to make both the user and the service provider better off. It can be also understood as maximizing the difference between economic benefits and costs. 6th EC GI & GIS 2000, Lyon, France

7. Marginal Cost Pricing Marginal cost pricing is pricing where the price is set to be equal to the marginal cost. Marginal cost is cost of producing an additional copy of the product. 6th EC GI & GIS 2000, Lyon, France

8. Cost of Information Products High fixed cost of producing the first copy of the information product. Low or zero marginal cost of producing an additional copy of the information product. 6th EC GI & GIS 2000, Lyon, France

9. Pareto Efficiency of Marginal Cost Pricing Marginal cost pricing may or may not be efficient: it depends on how the user’s total willingness to pay relates to the total cost of providing the good. Marginal cost pricing of Geoinformation product does not cover the total cost and is therefore not Pareto efficient. 6th EC GI & GIS 2000, Lyon, France

10. Nonlinear Pricing Pricing is nonlinear when it is not strictly proportional to the quantity purchased. Different prices are charged to different groups of buyers for the same product. 6th EC GI & GIS 2000, Lyon, France

12. Two-Part Tariff P = p 0 + p 1.q p 0 fixed fee (annual, monthly, membership) p 1 price set for a volume transferred qquantity transferred 6th EC GI & GIS 2000, Lyon, France

13. Is Two-Part Tariff Efficient? P = p 0 + p 1.q High fixed fee might exclude occasional users who are not willing to pay a membership or a license. The necessary condition for Pareto efficiency is not satisfied. 6th EC GI & GIS 2000, Lyon, France

14. Quantity Discounts The provider charges a lower price for a higher volume purchased. Pareto efficiency depends on the price- volume categories. They might disadvantage users with low willingness to pay. 6th EC GI & GIS 2000, Lyon, France

15. Term-Volume Commitments The user agrees to pay a certain amount of money for the service in advance. This strategy satisfies the Pareto efficiency requirement if the user can choose among different options which are designed indiscriminately. 6th EC GI & GIS 2000, Lyon, France

16. List of Price Options Different options can be combined and offered as a list of price options. In geomarketing services, the two-part tariff is often combined with uniform pricing scheme. 6th EC GI & GIS 2000, Lyon, France

17. List of Price Options P = p 0 + p 1.q two-part tariff P = p 2.q uniform pricing scheme p 0 fixed fee (annual, monthly, membership, etc.) p 1 price set for a volume transferred, membership option p 2 price set for a volume transferred, no membership option, (p 2 > p 1 ) q quantity transferred 6th EC GI & GIS 2000, Lyon, France

18. Pareto Efficiency of a List of Price Options Each user can choose between at least two pricing schemes; the uniform but higher price or the nonlinear, two-part tariff This policy assures that the users with the low willingness to pay are not disadvantaged and satisfies the requirements for Pareto efficiency. 6th EC GI & GIS 2000, Lyon, France

19. European vs. American Approach The US and Canadian geomarketing services market has characteristics of oligopoly; several service providers similar products competition drives prices down European market is determined by the high prices for base data and copyright restrictions. 6th EC GI & GIS 2000, Lyon, France

20. Conditions for Efficient Nonlinear Pricing Self-selection among two or more different pricing options Geoinformation products should be carefully designed and differentiated to satisfy the needs of a particular market segment Low prices of raw datasets enable new investors to enter geoinformation market Should not be illegal 6th EC GI & GIS 2000, Lyon, France

21. Thank you for your attention! Questions? 6th EC GI & GIS 2000, Lyon, France