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RE: Simultaneous User Pricing 

Maybe it's just the peculiar environment that I operate in,
but it doesn't seem to be as simple a matter as Bob Parks
explains it. If you really and truly could distill vendor pricing 
models down into basic economic models, it would seem
that vendor pricing would be more constant/consistent.
In an ideal world, Bob's models would work, but I think
we're operating in a less than ideal world.

I'll try to use a couple of examples:

  1. You could take a vendor with a broad customer
      base and compare the prices that similar institutions
      pay for these services when delivered to the customer
      in similar ways. I'd bet there would be a fair amount of
      variation in the prices that some of those institutions
      pay for equivalent services.

  2. If pricing was developed along strict economic models,
      there wouldn't be any wiggle-room in the price negotiation
      process. My experience has been the opposite. I've never
      personally dealt with a vendor who's refused to budge from
      their original pricing offer.

I guess the point I'm trying to make is that maybe there are
elements in the development of pricing models that are a little
too complex to be expressed in an economic model. Sometimes
it's the human element, and sometimes maybe it's simply that
the vendor isn't quite sure what values to plug into the $x and
$y used in Bob Parks' models.

Then again, I may be missing the point entirely. Economics never
really was my strong suit.  :-)

Bernie Sloan

************************************
Bernie Sloan                                     
Senior Library Information Systems Consultant
University Office for Planning & Budgeting
University of Illinois
(217) 333-4895
BernieS@uillinois.edu 
************************************

>----------
> From: 	bparks@wuecona.wustl.edu
>Sent: 	Friday, January 31, 1997 3:16 PM
>To: 	liblicense-l@pantheon.yale.edu
>Subject: 	Re: Simultaneous User Pricing
>
>Your reasoning is to justify the supplier's pricing strategy.  But his/her
>pricing strategy is both the delivery and production of the item.  Your
>reasoning only deals with the delivery and not the production. 
>
>Consider that it costs $X to produce the item, and that it costs $y to
>deliver the item to each user (ignore any cost differences between local
>and producer delivery). 
>
>Model 1:  The item is priced institutionally and there are I institutions
>so that the 'cost' is $X/I per institution regardless of the number of
>users (much like the unused journals litering everyones stacks).  You pay
>$X/I and if there are Ni users at your institution, you must also incur
>costs of Ni times $y.  Alas, you don't know Ni. 
>
>Model 2:  The producer provides the item to your users on simultaneous
>pricing.  The producer expects N total users.  Prices at
>
>($X + N*$y)/N.
>
>You pay Ni * ($X + N*$y)/N per user.
>
>Two differences:  A. Your expectations versus producer expectations
>about the number of users.
>
>		  B. Ni/N * $X versus $X/I
>
>
>I won't go into all the interesting complications - You prefer
>institutional pricing IF you are a relatively large institution and user
>pricing if a small institution.  You prefer user-pricing if unsatisfied
>users (turned away because there aren't enough simultaneous licenses) are
>less onerous than budgets.  You prefer that the producer OVER estimates
>the number of total users for user pricing and the number of institutions
>for institutional pricing.  Your averseness to risk vs. the producer's
>ETC. 
>
>>III.  My discomfort with the simultaneous user model is further increased
>>by the fact that with many systems and products, calculating how many
>>simultaneous users one needs is a total guess.  It is an art (to be kind
>
>Well that depends a lot on just how the simultaneous-user pricing is done. 
>But if you guess low, your users complain but your costs are lower. 
>
>Bob
>
>*--------------------------------------------------------------------------*
>| Bob Parks                                          Voice: (314) 935-5665 |
>| Department of Economics, Campus Box 1208             Fax: (314) 935-4156 |
>| Washington University                                                    |
>| One Brookings Drive                                                      |
>| St. Louis, Missouri 63130-4899                   bparks@wuecona.wustl.edu|
>*--------------------------------------------------------------------------*


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