Alternative Pricing Models Research Articles

The risk and return of impact investing funds

We provide the first analysis of the risk exposure and risk-adjusted performance of impact investing funds, private market funds with dual financial and social goals. We introduce a dataset of impact fund cash flows and exploit distortions in VC performance measures to characterize risk profiles. Impact funds have a lower market β than comparable private market strategies. Accounting for β, impact funds underperform the public market, though not necessarily more so than comparable strategies. We consider alternative pricing models, accounting for sustainability and emerging markets risk. We show investors’ wealth portfolios and taste change the perceived financial merit of impact investing.

The influence of regulation on preference for utility infrastructure investment to generate income for Australian water corporations

ABSTRACT Effects of price regulation and preference for utility supply infrastructure on Australian urban water utilities and urban water markets are examinated using historical data, models of the future and a case study of Greater Sydney. Australian regulators utilise the building block method based on operating and capital costs, and a Regulatory Asset Base to set nominal revenue requirements and ultimately prices for water utility services. Regulation of water utilities that is dependent on a Regulatory Asset Base drives preference for utility infrastructure and is remote from market mechanisms of consumer demands for water and sewage services. These regulatory processes are not linked to the operation of the urban water market of government owned utility and distributed solutions, and act to crowd out viable complementary solutions including water efficiency, distributed water sources and alternative pricing models. Government regulation, ownership and operation of utilities may produce strong performance from the perspective of urban water corporations but decrease economic efficiency, resilience and social welfare in urban water markets. The role of major water corporations needs to be redefined in a market recognising multiple complementary water sources and services. Regulation of utility services should have regard to the entire market, market demand, environmental health and consumer welfare.

Analysis of the Prices of Recycling Byproducts Obtained from Mechanical–Biological Treatment Plants in the Valencian Community (Spain)

Municipal solid waste (MSW) management in Spain, particularly in the Valencian Community, heavily relies on mechanical–biological treatment (MBT) plants followed by landfill disposal. These MBT facilities utilize mechanical processes like shredding, screening, and sorting to segregate recyclables (metals, plastics, paper) from organic material and other nonrecyclables. While public funding supports these plants, private entities manage them through complex, long-term concession contracts. This structure restricts access to crucial data on the sale prices of the byproducts generated during MBT. Publicly available information on relevant company and administration websites is typically absent, hindering transparency surrounding byproduct revenue. This study addresses this gap by analyzing 2012’s available data on revenues obtained from byproduct sales following mechanical treatment at MBT plants within the Valencian Community and comparing them with Spanish national data. This research revealed a significant finding—the statistical distribution of average prices obtained from Ecoembes auctions in the Valencian Community mirrored the corresponding distribution for prices calculated from auctions conducted in other Spanish regions. This suggests a potential uniformity in byproduct pricing across the country. It has also been found that none of the analyzed price distributions exhibited a normal (Gaussian) distribution. The findings also highlight the need for alternative pricing models that move beyond simple averages and account for regional variations and outliers. As actual prices are not available after 2012, this lack of transparency poses a challenge in comprehensively evaluating the economic viability of MBT plants. Furthermore, it raises concerns regarding whether the revenue generated from byproduct sales reflects fair market value. Limited public access to this information can potentially indicate conflicts of interest or inefficiencies within the waste management system.

Infliximab Pricing in International Economic Evaluations in Inflammatory Bowel Disease to Inform Biologic and Biosimilar Access Policies: A Systematic Review.

In an effort to reduce public drug expenditures, Canadian and other jurisdictional drug plans have mandated the use of lower cost, but similarly effective, biosimilars in patients with newly diagnosed inflammatory bowel disease or require a nonmedical switch for established patients. This switch has created concerns for patients and clinicians who want to maintain the ability to make treatment decisions and remain with the original biologic.It is customary for economic evaluations to assess the robustness of results to variations in high-cost items such as medications. In the absence of economic evaluations of biosimilars, examining biologic drug price in sensitivity analysis provides insight into the cost-effectiveness of biosimilar alternatives. A total of 31 economic evaluations of infliximab for the treatment of inflammatory bowel disease varied the infliximab price in sensitivity analysis.The infliximab price deemed to be cost-effective within each study ranged from CAD $66 to CAD $1,260 per 100-mg vial. A total of 18 studies (58%) demonstrated an incremental cost-effectiveness ratio above the jurisdictional willingness-to-pay threshold. If policy decisions are based on price, then originator manufacturers could consider reducing the price or negotiating alternative pricing models to enable patients with inflammatory bowel disease to remain on their current medications.

PP152 The Assessment Of The Price Of A Medicine: The Possible Application Of Cost-Based Pricing Methods

IntroductionBefore admission to the insured package, the price of a medicine is usually assessed on the basis of the value of the medicine for the patient: the effect size on health and survival must be in line with the costs. That seems like a fair starting point, but the use of such ‘value-driven’ models sometimes results in unrealistic prices. These prices in turn lead to discussions about limitations within the healthcare budget and may result in delays in the accessibility of medicines. The aim of this study was to review several alternative pricing models and propose possible applications of the models.MethodsSix pricing models were selected that encompassed cost-based or cost- and value-based aspects. The models were reviewed within the context of the published group of medicines, followed by a discussion on their potential to aid in creating benchmarks for pricing negotiations.ResultsFive cost-based pricing models and one value-based model with a cost-based aspect were found with potential applications. (i) The AIM-model for innovative medicines. (ii) The adjusted AIM-model for repurposed medicines. (iii) The Cancer drug pricing model for innovative oncolytics with information about health benefit. (iv) The discounted cash flow model for orphan medicines with information about health benefit. (v) The value-based rate of return pricing for innovative orphan medicines with information about health benefit. (vi) The P-quad model for drugs with a high budget impact for which there is no generic competition after intellectual property an regulatory exclusivity end.ConclusionsWe argue that it would be more logical for different categories of medicines to base prices on average costs, possibly combined with a bonus for innovation: the cost-based pricing method. The next step is to discuss the possible application of cost-plus methods with stakeholders including patients, industry, payers, and healthcare professionals.

The Payer License Agreement, or "Netflix model," for hepatitis C virus therapies enables universal treatment access, lowers costs and incentivizes innovation and competition.

Background and AimsHigh unit prices of treatments limit access. For epidemics like that of hepatitis C virus (HCV), reduced treatment access increases prevalence and incidence, making the infectious disease increasingly difficult to manage. The objective of the current study was to construct and test an alternative pricing model, the Payer License Agreement (PLA), and determine whether it could improve outcomes, cut costs and incentivize innovation versus the current unit‐based pricing model.MethodsWe built and used computational models of hepatitis C disease progression, treatment, and pricing in historical and future scenarios and quantitatively analyzed their economic and epidemiological impact in three high‐income countries.ResultsThis study had three key results regarding HCV treatment. First, if the PLA model had been implemented when interferon‐free direct‐acting antiviral (DAA) combinations launched, the number of patients treated and cured would have more than doubled in the first three years, while the liver‐related deaths (LRDs) would have decreased by around 40%. Second, if the PLA model had been implemented beginning in 2018, the year that several Netflix‐like payment models were under implementation, the number of treated and cured patients would nearly double, and the LRDs would decline by more than 55%. Third, implementing the PLA model would result in a decline in total payer costs of more than 25%, with an increase to pharmaceutical manufacturer revenues of 10%. These results were true across the three healthcare landscapes studied, the USA, the UK and Italy, and were robust against variations to critical model parameters through sensitivity analysis.Conclusions and RelevanceThese results suggest that implementation of the PLA model in high‐income countries across a variety of health system contexts would improve patient outcomes at lower payer cost with more stable revenue for pharmaceutical manufacturers. Health policy‐makers in high‐income countries should consider the PLA model for application to more cost‐effective management of HCV, and explore its application for other infectious diseases with curative therapies available now or soon.

Impact of business intelligence solutions on the internationalisation of French software firms

Business intelligence solutions play a crucial role in the process of internationalisation for small and large companies. However, small and medium-sized firms have not been taking full advantage of these solutions. This multiple case study aims to explore the perceptions of owners and senior managers of French small and medium-sized software firms on the use of business intelligence in their internationalisation process using the updated Uppsala model as conceptual framework. The results of this research demonstrated that small and medium-sized software firms in France are not taking advantage of business intelligence solutions as most of them do not use these solutions, nevertheless, they perceive that BI solutions have a positive impact on the success of their internationalisation process. This article contains implications for practice for the BI solutions providers like having an alternative pricing model for SMEs and for the authorities to provide relevant data to software SMEs.

PNS36 NOVEL Development and Pricing MODEL for Pharmaceutical Products

Ongoing political and societal debate about high drug prices increasingly results in discussions around alternative development and funding models for pharmaceutical products. In particular, such alternative models should build on transparency about price setting and earning model. The aim of this study was to develop an alternative pricing model based on recently published information on pharmaceutical R&D cost split. For the development of the alternative pricing model, it was chosen to apply the real-option rate of return concept. The real-option rate of return pricing model is a cost-based pricing model that includes all relevant current and future costs in the price determination. The price is determined by the three major R&D costs components, production costs, time on the market, number of patients and desired return. The model applied was compared with other recently published models (e.g. Uyl- de Groot et al), and the most important parameters as well as conditions needed to apply the model were assessed. The alternative development and pricing model was applied for two case examples comparing the newly development model with the model developed by Uyl-de Groot et al. Here, we observed a reduction of 4% in the Enzalutamide case study and 20% in the Ruxolitinib case study. Regarding the translation to real-life application, we propose to include both failure costs and capital costs in the total R&D costs used for the price determination. Therefore, in addition to the variables used in the pricing model, data regarding failure rate and time of development are key. Application of alternative business- and pricing models creates an opportunity to reduce product prices. Correct calculation of all relevant current and future R&D costs is key in cost-based price determination. The alternative model developed seems a viable method for pharmaceutical products.

Context‐aware resource management and alternative pricing model to improve enterprise cloud adoption

SummaryExisting Cloud resource management approaches favor Cloud service providers because of their data‐center origin. The onus of efficiently managing the resources is on the end‐user. Present provisioning/deprovisioning methods and the pricing model could be modified to ensure that the end‐user reaps the benefits. The current study proposes a context‐aware Cloud resource management approach based on a workload‐type provisioning and a just‐in‐time deprovisioning design. Furthermore, it also recommends an alternative pricing model. The design intends to provision/deprovision individual resources like CPU, memory, and so on, according to the workload‐type rather than instance‐type as done in existing Cloud resource management approaches. The proposed approach was commissioned on a private lab infrastructure and several experiments were conducted. It was observed that the proposed approach was able to detect sample workload types with an average sensitivity of 82% and specificity of 76%. The average cost of the proposed approach was found to be 20% less than the present approach.

An algorithm of selecting the pricing model for a construction contract

An algorithm has been developed for selecting a price model for a construction contract. This is important because price is one of the key parameters of a contract. It is this parameter that determines how much of the value created in the framework of the contract in a monetary form goes to the contractor and what remains to the client. The study has found that the contract drivers of pricing are the initial price, control, incentives (moral hazard), and the final price. This interpretation coincides with the fundamentals of contract theory and is a prerequisite for the fundamental credibility of the developed system. The basic input components of the decision-making algorithm on the most appropriate pricing strategy are the matrix of properties of contract price models and a metric of questions for evaluating the client’s respective priorities for the project. The system helps choose one of five key pricing strategies: CRC, MC, TC, LS or GMP, which are used in international practice. Applying the system of choosing the pricing model of a contract in conjunction with the system of selecting the organizational profile of the project provides an opportunity to choose the most appropriate strategy from 130 paired alternatives. The proposed approach in a cumulative way contributes to the success of construction projects and has a unified character. The formalized toolkit for benchmarking alternatives is the digital content of the strategic COMP – Contract Organizational Mechanisms: Pricing. The algorithm is built on estimating the priority vectors of pricing factors for a project (based on certain sets of ranks and ratings) with a further grading of the feasibility of using each of the alternative price models in the project. Approbation of the COMP system in the construction project of the Ice Arena in Kyiv has shown that the created conceptual model (the proposed algorithm) makes it possible to take an expedient decision on the pricing strategy for a contract with mathematical, high theoretical and practical argumentation

Improving Usage Metrics for Pay-per-Use Pricing with IoT Technology and Machine Learning

Overview: Servitization has attracted significant attention from the manufacturing industry for its potential to provide competitive advantage. Advanced services require alternative pricing models, such as pay-per-usage (PPU), but many support goods fail to produce countable output units, leaving few choices for billing metrics. However, this article proposes an improved set of usage metrics based on Internet of Things (IoT) technology and machine learning. These metrics capture value-in-use and allow for more accurate assessment of the depreciation, providing benefits to both the manufacturer and the customer and supporting the extension of PPU models to a wider range of industrial support goods and product-service systems.

Customer preferences in mobile game pricing: a service design based case study

This article examines the service design of freemium game pricing. Freemium games are a type of game that is partially free to play, but its players are able to access various options by playing real money. The article increases knowledge of the usability of service design processes in the pricing of mobile games, as well as the understanding of central aspects of freemium pricing models from the perspective of user experience and customer value. Existing research shows that one major reason for failing freemium pricing models is the orientation for technology development, alongside poor content and too aggressive monetization, rather than customer experience. The article presents a process in which an alternative pricing model was developed for freemium games, through the use of service design workshops.

The evolution of market share among the U.S. options market platforms

Abstract The U.S. equity options market has shown rapid growth, characterized by increased trading volume and new entrants in recent years. As competition in the options market has intensified, each trading venue has attempted to differentiate itself with a unique value proposition aimed at gaining market share. Using a sample that covers key events including the introduction of two new trading venues, we analyze the competition for trading volume, investigate the characteristics of trades and execution costs on the exchanges and examine the evolution of market share in the options industry. We find that exchange market share is positively related to execution quality and quote competition indicators and negatively related to execution costs, while exchanges that use the maker–taker model as their primary pricing model account for, on average, a lower market share than exchanges that use alternative pricing models. Given that exchanges increasingly compete using innovative methods involving market structure such as different order types, fee structures, pricing methods, and priority rules for matching orders, our finding that higher market quality in the form of higher execution quality, lower execution costs, and competitive quotes translates into higher market share is especially noteworthy.

Pricing Inflation Linked Bonds and Hedging Bond Portfolios: A Comparative Analysis Applied to French OAT Indexed Bonds

This paper applies several alternative bond pricing models to French inflation linked bonds and nominal bonds OAT, in order to compare their ability to track their market prices and their efficiency in bond portfolio protection against interest rate risk. The pricing models used are bootstrapping, a piecewise constant forward rates method proposed by Jarrow and Yildirim (2003), a cubic spline model and the Nelson and Siegel smoothing model. The results obtained show that the bootstrapping procedure outperforms the other methods both in bond price fitness and in hedging efficiency, followed by the Jarrow and Yildirim methodology. The paper also provides evidence about the benefits of being protected against real interest rate and inflation risks versus a protection against nominal interest rate risks.

A consistent two-factor model for pricing temperature derivatives

In the past decade, the Chicago Mercantile Exchange began to trade weather derivatives to hedge weather risk. The pricing of weather derivatives is challenging since the underlying is not tradable and thus classical arbitrage approaches have to be used with caution. In typical pricing approaches all information available to the market is assumed to be incorporated in the underlying and thus forward-looking information about non-tradable assets such as meteorological forecasts is often ignored. In this article, we analyze a new pricing methodology for temperature derivatives that accounts for forward-looking information. More precisely, we provide an empirical back-up for the theoretical framework of so-called consistent factor models for temperature forecast curves introduced previously in the literature and put this pricing approach into practice. First, we perform a thorough statistical analysis of meteorological forecast curve data. Second, based on this analysis we propose a specific consistent two-factor model, derive explicit temperature derivative prices, and calibrate the market price of risk (MPR). The power of the model is demonstrated against alternative pricing models. This confirms that at least parts of the irregularity of the MPR observed in earlier studies are not due to irregular risk perception but rather due to information misspecification.

Equity Crowdfunding and Peer-to-Peer Lending in New Zealand: The First Year

Raising funds from public investors through equity crowdfunding and peer-to-peer lending was legalised in New Zealand in April 2014. The following year saw the registration of six new financial service providers offering financial crowdfunding services, mainly in equity crowdfunding. With only one peer-to-peer lender operating there is still a lot of room for that market to develop, in particular through the introduction of alternative pricing models, larger loans and business lending. While there are five registered platforms equity crowdfunding is currently dominated by two, The Snowball Effect and Pledgeme, each serving distinct market segments. However, if Australia adopts similar rules it will allow crowdfunding platforms targeting both markets an opportunity to take advantage of a larger crowd, changing the competitive environment.

Islāmic Finance Benchmark : A Possible Solution Revisited

Financial Assets’ pricing benchmarks serve multiple purposes in financial markets and hence play a critical role. First, they serve as a reference point for pricing instruments; second, they reflect the opportunity cost and third, they serve as a reference rate for the relative performance of investment portfolios. Hence, a benchmark that is transparent, liquid, easy to calculate and non-manipulative is considered critical for the efficiency of financial markets. Recent scandal of LIBOR’s manipulation by Barclays bank emphasizes the importance of a non-manipulative benchmark. In this paper, we propose an alternative pricing model and show how it could work to serve the purpose of a potential benchmark for pricing. This model was proposed by Abbas Mirakhor (1996) by utilizing the concept of Tobin’s Q to arrive at the cost of capital (CoC) without resorting to fixed interest rate. We have empirically tested the model on Malaysian firms. To arrive at the CoC, we derived Q-ratios at firm level and aggregated the same at the industry level. Our findings suggest that the model proposed by Mirakhor (1996) can be used to estimate CoC in an interest free economy.

Average Drawdown Risk and Capital Asset Pricing

Practitioners and academics have spent the past few decades debating the validity and relevance of the capital asset pricing model (CAPM). One of the attributes of the model is an estimate of risk by beta, which in equilibrium describe the behavior of mean-variance (MV) investors. In the MV framework, risk is measured by the variance of returns which is a questionable and restrictive risk measure. In contrast, the average drawdown risk is a more acceptable risk measure and can be applied to modeling an alternative behavioral hypothesis, namely mean-drawdown behavior with a replacement risk measure for diversified investors, the average drawdown beta leading to an alternative pricing model based on this beta. Our findings clearly support the average drawdown beta and the pricing model of average drawdown CAPM versus the conventional beta and CAPM in a sample of Malaysian mutual funds.

Alternative Preisbildungsmodelle – eine realitätsnahe Option?

Alternative pricing models – a realistic option? The use of alternative pricing models as a means to automatize or at least facilitate the pricing of timber and thereby also reduce the volatility of timber prices has been under consideration for the past several years. The possibilities and limitations of such alternative pricing models are examined in this article using a retrospective comparative analysis. Overall, the results of six pricing models (these are: annual contract, quarterly contract, attenuation of the rate of change, mixed pricing, regression analysis derived price escalation clause, and self-fulfilling contract) are compared with the development of real timber prices between 2000 and 2010 of the state forest enterprise of Baden-Württemberg (Germany) and analyzed using a set of performance measures. It turns out that there is a conflict of objectives between determining the exact figure of the market price by alternative pricing models and reducing the volatility of timber prices. Thus, quarterly contracts show the market price well, though display no relevant volatility reduction effect; conversely, contracts with a defined attenuation rate lead to a substantial reduction of volatility but also to maximizing deviations from the market price. It is also questionable in how far price escalation clauses, that is, models which were calibrated from regression analysis on the basis of historical data, are able to predict the future development of market prices. At the moment, alternative pricing models can therefore hardly replace the real market-negotiated timber price. They can though support pricing negotiations between buyers and sellers, but primarily in time periods not characterized by a pronounced dynamic.

A new approach to congestion pricing in electricity markets: Improving user pays pricing incentives

Electricity pricing has traditionally been based on average cost pricing where consumers pay a ‘flat’ tariff based upon the average cost of production and transportation of electricity. The introduction of new ‘smart’ meters allows electricity providers to differentiate tariffs on the basis of time. Utilising congestion pricing theory, the energy industry has embraced ‘time-of-use’ (ToU) tariffs with a view to more efficiently pricing electricity. This paper demonstrates that pricing as a function of demand variability (reflecting capacity utilisation) is a more appropriate alternative to existing ToU tariffs for more efficiently allocating costs to end users. We call this new alternative pricing model ‘first derivative ratio’ FDR pricing. This new approach to congestion pricing could be applied to markets other than electricity, such as road transportation.