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Pearlstein on the economics of flat rates vs. tiered broadband pricing

By Steven Pearlstein

The night before my son's college graduation last month, we made plans to celebrate at one of his favorite restaurants, Fogo de Chão, one of those Brazilian steakhouses where they come around with more than a dozen types of grilled meat and you take as many servings as you want. There is also a fabulous salad bar, which resembles an Italian antipasto.

Eli was a bit conflicted about the choice of restaurant. For him, the all-you-can-eat pricing seemed like a great deal after he'd put down his third helping of succulent rib-eye and special sirloin. But he figured (correctly, as it turned out) that his mother and sister would never eat enough meat to justify the hefty fixed price the restaurant charges for each diner.

Although he didn't put it quite this way, Eli would have preferred that Fogo de Chão had offered tiered pricing -- one price for all-you-can-eat customers such as himself, and a lower one for those with more modest appetites. That way he would have felt as if we, as a family, were getting better value.

... Lots of other businesses use one-price strategies. Many health insurers charge the same for family plans no matter how many kids are involved, while delivery services charge the same for a package no matter how far it travels. And in recent years, it has turned into the dominant pricing strategy in much of the telecommunications business, where unlimited phone calls and texting and Internet access have become the norm.

Read here for full column.

By Steven Pearlstein  |  June 9, 2010; 10:50 AM ET
Categories:  AT&T , Comcast , Consumers  
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