Service design and price competition in business information services

We examine two competing technologies for delivering business information to professional subscribers: first, a package service that delivers information using physical media, such as CD-ROMs; second, an online service that allows subscribers to access information over online networks. We model the information services market as a duopoly, where each information service provider is equipped with either packaged or online information delivery technology. They compete for potential subscribers characterized by their usage volume. Subscribers may also choose ‘self-service’, wherein they collect and collate information directly from the source. Service design for information service providers must specify their information delivery technology and the size of the database they provide. Service providers first commit to a service design and then enter a price competition phase, where they choose the parameters of their feasible pricing strategies. Specifically, a package service provider chooses a fixed charge for subscription. An online provider chooses both a fixed charge and a marginal charge, because it is possible to meter usage in that technology. We show that the package provider serves high volume subscribers while the online provider serves low volume subscribers. We also derive bounds on equilibrium database sizes, prices, and market shares for each provider.