Differentiation With Shared Features And Cannibalization Of Information Goods

Large sunk cost of development, negligible cost of reproduction and distribution and substantial economies of scale make information goods distinct from industry goods. In this paper, we analyse versioning strategies of horizontally differentiated information goods with shared feature sets, discrete hierarchical groups and continuous individual consumer tastes. Based on our modelling results, when cannibalization is considered among different market segments, it is always sub-optimal to differentiate information goods if market is not fully differentiated or characteristics of the information goods are not specifically designed to relate to certain market segments

iPhone or Kindle: Competition of Electronic Books Sales

With the technical development of the reading equipment, e-books have witnessed a gradual and steady increase in sales in recent years. Last year, smart phones announced to be able to perform additional functions as e-book reading devices, making it possible for retailers selling e-books for smart phones (SPR) such as iPhone to differentiate with those selling e-books for specific reading equipment (SER) such as Amazon Kindle. We develop a game theory model to examine the competition between SER and SPR retailers. We derive the equilibrium price and analyze the factors that affect equilibrium outcomes under both scenarios of complete and incomplete information. Our results suggest that reduced cost due to inconvenience of reading e-books over iPhone lowers equilibrium prices, and reduced cost of specific reading equipment leads to more intense price competition. Under information asymmetry, we show that SER retailers will increase the price at equilibrium

Contrast and Assimilation in Consumer Software Selection Decisions – An Experimental Study

Software selection research has so far mainly focused on corporations and often assumed a rational evaluation of selection criteria. Research on consumers’ software selection is still scarce. However, findings from outside IS indicate that consumers’ software selection decisions might be biased by the choice alternatives among which software is selected. In an experiment, this study investigates if consumers’ selection decisions for software package variants are subject to contrast or assimilation and how this affects purchase decisions. In conjoint-type tasks, subjects evaluate software packages alongside other package-variants with reduced functionality and price. Consumers are found to be susceptible to contrast effects when selecting software. They have a higher likelihood to purchase a software package, when they choose from a set of alternatives that also includes package-variants with reduced functionality. This positive effect disappears when the price of the less functional packages is reduced sufficiently. Implications for research and practice are derived

For a Fee: The Impact of Information Pricing Strategy on the Pattern and Effectiveness of Word-of-Mouth via Social Media

With the new realities of the digital age, print newspapers are experimenting with different pricing models for their online content. Using NYT’s paywall rollout as a natural experiment, our study finds that a firm’s information pricing policy influences the pattern and effectiveness of online word of mouth (WOM) in social media. Using difference-in-difference-in-differences analysis, we find that implementing a paywall (i.e., charging for the content which was earlier available for free) has a disproportionate impact on the WOM for popular and niche articles, creating a longer tail in the content sharing distribution. Further, we find that the impact of WOM on NYT’s website traffic weakens significantly after the introduction of NYT’s paywall. These results show that information pricing strategy has implications for product and promotion strategies. The study offers novel and important implications for the theory and practice of strategic use of social media and information pricing strategy

Timing is Money - Evaluating the Effects of Early Availability of Feature Films via Video on Demand

Based on survey data from 489 German potential Video On Demand users this research explores effects of early movie availability on consumers’ utility, their willingness to pay, and copyright violations. Using a triangulation approach, we employed adaptive conjoint analysis and contingent valuation methodologies. Our results show substantially increased utility levels and greater willingness to pay for Video On Demand services that offer movies simultaneously with or shortly before the first official theatrical release. Our findings bear similarities to results from experiments on hyperbolic discounting, a concept from the field of behavioral economics. Diverging from classic microeconomic theory, immediate consumption seems to be valued irrationally high. This effect is even stronger for copyright violators. Implications both for future academic research and for the motion picture industry are drawn

Pricing Models of e-Books When Competing with p-Books

With the rise in popularity of e-books, there is a growing need to reexamine the pricing strategy in the e-book supply chain. In this paper, we study two forms of pricing models widely used in the book industry: wholesale and agency pricing models. We first assume a stylized deterministic demand model in which the demand depends on the price, the degree of substitution, and the overall market potential. Subsequently, we employ the game theory to determine the price equilibriums and profit distribution under different pricing models. Finally, we explore the behavior of the publisher and the retailer under different preferences and degrees of substitution through a computational study. Our findings indicate that the e-book price will be lower under the agency pricing model than under the wholesale pricing model, which is counterintuitive. The publishers have higher incentives to adopt the agency pricing model than the wholesale pricing model. The agency pricing model benefits the whole system and can provide readers with books at lower prices. The degree of substitution between the two forms of books and the readers' preference toward e-book will affect the books' price and the profit distribution between the publisher and the retailers

Product development and pricing strategy for information goods under heterogeneous outside opportunities

This paper considers a two-stage development problem for information goods with costless quality degradation. In our model, a seller of information goods faces customers that are heterogeneous with regard to both the marginal willingness to pay for quality and the outside opportunity. In the development stage, the seller determines the quality limit of the product. In the second stage, the seller's problem is to design the price schedule corresponding to different quality levels, taking into account production and distribution costs. We show that versioning is optimal for the seller when customers have multiple outside options or, more generally, convex reservation utilities. In addition, we show that in the optimal solution the seller discards both low-end and high-end customers. Among those that are served, the seller offers a continuum of (inferior) versions to customers with relatively low willingness to pay, and extracts full information rent from each of them. A common version with the quality limit is offered to the rest. We further prove that the seller should offer a single version when reservation utilities are either concave or linear. Through numerical experiments, we study the sensitivity of our results to changes in the cost structure and customer utilities. © 2007 INFORMS