Academic journal article American Economist

Optimal Pricing for Voicemail Services

Academic journal article American Economist

Optimal Pricing for Voicemail Services

Article excerpt

I. Introduction

The uniqueness of phone calls, mailing, chatting, fax messages and some (but not all) network instruments is precisely that communicating is achieved by the two parties only if an actual connection occurs (Kim et al (2002) call these "pingpong goods" whose values are generated only through joint consumption). The sender is willing to pay an appropriate price for his phone call only if the receiver actually picks up the phone and establishes communication Still the key question is who should pay for successful contact. In a recent paper by Hermalin and Katz (2004) this very question is raised. They conclude that in order to maximize welfare and the firm's profits the receiving party should subsidize the sender (since he is generating a benefit to the receiver). A similar conclusion was first established by Kim and Lira ((2001) and (2002)). The sender-receiver market issue has also been discussed by Rochet and Tirole (2004). They focused on the question of how to deal with a market where buyers and sellers need to be brought together for the market to exist, as well as on the nature of the pricing policy that may lead to an efficient solution. The question as to what happens in cases where the benefits to the two sides are not positive and/or not symmetric, as well as the resulting implications as to pricing policy were not addressed in their paper.

The asymmetry issue between parties, i.e. senders and receivers, who may generate either positive or negative externalities, was recently discussed by Loder, Van Alstyne and Wash (2006). Nevertheless, in their paper they deal with homogeneous senders and homogeneous receivers but don't relate to the issue of asymmetric attitudes towards contact between parties as well as the asymmetry of being a sender vs. that of being a receiver Our paper adds to the above literature another dimension that is part and parcel of the current communications industry, that of asymmetric behavior of different senders and receivers. In the last decades this industry has witnessed some significant technological improvements including features that did not previously exist and in particular that of voicemail service that is used today so frequently that people (especially the young) cannot imagine a world without it. This capability certainly increases the degree of communication efficiency. Statistically, a certain percentage of these messages cannot be directly received either because the receiver is unavailable due to the absence of an open phone in his vicinity, or because he simply does not desire to receive calls at that time.

Voicemail services increase the percentage of successful contacts, either by leaving recorded messages by senders to receivers, that do not require a further call back by the original receiver to the former sender, or by encouraging the original receiver to call back the original sender to discuss the issues through an additional direct call.

This service that benefits both parties (receivers as well as senders) should be charged for by the telecommunication companies, however, the question is who should pay and how much.

Assuming a monopoly telecommunication company who charges for each phone call and for each message left on the answering machine, the question still remains: who should pay for those services. Even if we assume that the usual policy is that the sender pays for regular phone calls that he successfully accomplishes, still the question that remains open is who pays and how much for leaving messages on voicemail.

Today the usual practice is that the sender who leaves a message pays for it, usually at the regular price of a phone call, while the receiver pays a fixed monthly tariff for the right to use the answering service.

We can argue that a different possibility should be considered by the communication industry. If the receiver would not make a return call to the sender, it is possible that the sender should pay for the use of the message left on the voicemail. …

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