Monopoly Profits in a Competitive Market for Undifferentiated Information Goods via Differentiated Pricing Schemes
نویسنده
چکیده
It is known that the Bertrand outcome can be avoided when sellers are capacity constrained (Edgeworth 1897); when products are differentiated (d'Aspremont, Gabszewicz, and Thisse 1979); when the model is changed from one of short-run competition to long-run competition (Chamberlin 1929); when consumers are not perfectly informed or if it is costly for them to obtain information (Salop 1977). Jain and Kannan [2002] show that undifferentiated providers of online databases can make positive profits if their marginal costs are large enough and consumers are risk averse and uncertain about their usage. We show another way that duopolists selling information goods may use to earn monopoly profits even when sellers’ marginal costs are negligible and buyers are risk-neutral and informed about their usage. Specifically, when there are two segments of buyers “suited” to different pricing schemes, then the firms’ adopt distinct pricing schemes to differentiate themselves and obtain substantial profits. A pricing scheme is better “suited” to a set of buyers if the scheme can extract greater monopoly profits from these buyers compared to other pricing schemes. There is extensive literature in the IS area that examines the optimal pricing of information goods without addressing why sellers may use multiple pricing schemes. Recent papers include Sundararajan [2003], Bhargava and Choudhary [2001].
منابع مشابه
Contingency Pricing for Information Goods and Services Under Industrywide Performance Standard
This paper demonstrates that quality-contingent pricing is a useful mechanism for mitigating the negative effects of quality uncertainty in e-commerce and information technology services. Under contingency pricing of an information good or service, the firm pre-announces a rebate for poor performance. Consumers determine performance probabilities using publicly available historical performance ...
متن کاملIncentive Compatible Pricing Strategies for Product Differentiation in Durable-Goods Markets
Product differentiation in durable-goods markets is often complicated by the fact that decision processes for the market participants are intrinsically dynamic. For example, consumers can employ a variety of consumption patterns with actions that vary in time, even for a single brand of goods. Transaction costs in selling used goods prompt consumers to think ahead in order to avoid adverse lock...
متن کاملPricing Information Goods: A Strategic Analysis of the Selling and Pay-per-Use Mechanisms
A Working Paper is the author's intellectual property. It is intended as a means to promote research to interested readers. Its content should not be copied or hosted on any server without written permission from [email protected] Find more INSEAD papers at We analyze two pricing mechanisms for information goods – selling, where an up-front payment allows unrestricted use by the consum...
متن کاملUse of Pricing Schemes for Differentiating Information Goods
Information goods vendors offer many different pricing schemes such as per user pricing, site licensing, etc. Why do some firms such as Microsoft offer multiple pricing schemes while others such as Apple’s iTunes and Salesforce.com limit themselves to a single pricing scheme? Why do competing sellers adopt different pricing schemes for the same information good? We show that pricing schemes aff...
متن کاملCommodity Bundling and the Leverage of Market Power
The modern literature on commodity bundling argues that a monopolist may use bundling to extend its monopoly power into an otherwise oligopolistic market by foreclosing entrants or excluding rivals. This approach is contrary to the Chicago critique of Posner and Bork, who defend bundling as irrelevant to such monopolization, being incapable of extending the “one monopoly rent.” However, this pa...
متن کاملذخیره در منابع من
با ذخیره ی این منبع در منابع من، دسترسی به آن را برای استفاده های بعدی آسان تر کنید
عنوان ژورنال:
دوره شماره
صفحات -
تاریخ انتشار 2004