Leasing and selling: optimal marketing strategies for a durable goods firm
Management Science
Pricing for a Durable-Goods Monopolist Under Rapid Sequential Innovation
Management Science
An economic model to compare the profitability of pay-per-use and fixed-fee licensing
Information and Software Technology
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A new service model has emerged which delivers application software and services over the Web on a lease or subscription basis. Our paper studies the optimal licensing policy of a software vendor that uses that business model. We look at software vendors that are both selling (at a posted price) or leasing their products where as lessor they guarantee that the lessee will always have the latest version of the software on their desktop. We address some of the specific issues of implementing this policy at the packaged software market, including the impact of network externality, negligible marginal production costs, and upgrade compatibility. We show that by properly defining their pricing structure, software vendors can segment the market and realize effective second-degree price discrimination and show how and when software vendors can maximize their profits through the use of this new licensing policy.