Nonlinear pricing of information goods

This paper analyzes optimal pricing for information goods under incomplete information, when both unlimited-usage (fixed-fee) pricing and usage-based pricing are feasible, and administering usage-based pricing may involve transaction costs. It is shown that offering fixed- fee pricing in addition to a non-linear usage-based pricing scheme is always profit-improving in the presence of any non-zero transaction costs, and there may be markets in which a pure fixed-fee is optimal. This implies that the optimal pricing strategy for information goods is almost never fully revealing. Moreover, it is proved that the optimal usage-based pricing schedule is independent of the value of the fixed- fee, a result that simplifies the simultaneous design of pricing schedules considerably, and provides a simple procedure for determining the optimal combination of fixed-fee and non-linear usage-based pricing. The introduction of fixed-fee pricing is shown to increase both consumer surplus and total surplus. The differential effects of setup costs, fixed transaction costs and variable transaction costs on pricing policy are described. These results suggests a number of managerial guidelines for designing pricing schedules. For instance, in nascent information markets, firms may profit from low fixed-fee penetration pricing, but as these markets mature, the optimal pricing mix should expand to include a wider range of usage-based pricing options. The extent of minimum fees, quantity discounts and adoption levels across the different pricing schemes are characterized, strategic pricing responses to changes in market characteristics are described, and the implications of the paper's results for bundling and vertical differentiation of information goods are discussed.nonlinear pricing, screening, digital goods, information goods, fixed-fee, usage-based pricing, transaction costs

Determination of the bundle price for digital information goods

The fast emergence of Internet as a media to distribute digital information goods created many new opportunities for the packaging and pricing of these goods. The pricing of information goods introduces a challenge since the cost structure of information goods differs from that of conventional physical goods in that they can be costly to introduce but are relatively cheap to reproduce. The bundling strategy for digital information goods helps producers to extract more value from customers and can result in cost savings due to the presence of economies of scale. This study aims to determine the optimum price a producer of digital information goods has to charge for a bundle in order to maximize his gross margin. The bundle pricing model is constructed for both uniform and exponential distributions of the fraction of information goods in the bundle that has positive value for the customers

Quality over-provision of information goods

This paper studies a producer's quality choice of an information good. The marginal cost of quality provision for the good is decreasing. The buyer does not observe the actual quality but can learn a signal which is the sum of quality and a noise. It shows that the producer has an incentive to over-supply quality. Moreover, and interestly, all types of producer may over-supply quality.Information goods

Pricing Information Goods in the Presence of Copying

The effects of (private, small-scale) copying on the pricing behavior of producers of information goods are studied within a unified model à la Mussa-Rosen (1978). When the copying technology involves a marginal cost and no fixed cost, producers act independently. In this simple framework, we highlight the trade-off between ex ante and ex post efficiency considerations (how to provide the right incentives to create whilst limiting monopoly distortions?). When the copying technology involves a fixed cost and no marginal cost, pricing decisions are interdependent. We investigate the strategic pricing game by focussing on some significant symmetric Nash equilibria.Information goods, Piracy, Copyright, Pricing

Pricing and Bundling Electronic Information Goods: Field Evidence

Dramatic increases in the capabilities and decreases in the costs of computers and communication networks have fomented revolutionary thoughts in the scholarly publishing community. In one dimension, traditional pricing schemes and product packages are being modified or replaced. We designed and undertook a large-scale field experiment in pricing and bundling for electronic access to scholarly journals: PEAK. We provided Internet-based delivery of content from 1200 Elsevier Science journals to users at multiple campuses and commercial facilities. Our primary research objective was to generate rich empirical evidence on user behavior when faced with various bundling schemes and price structures. In this article we report initial results. We found that although there is a steep initial learning curve, decision-makers rapidly comprehended our innovative pricing schemes. We also found that our novel and flexible "generalized subscription" was successful at balancing paid usage with easy access to a larger body of content than was previously available to participating institutions. Finally, we found that both monetary and non-monetary user costs have a significant impact on the demand for electronic access.

Consumption of Information Goods and Services in the United States

Presents findings from a survey conducted in October 2002. Takes an inventory of the communications gadgets and services that Americans use, and examines the variations within the population of technology users

Applying the Open Source Development Model to Knowledge Work

This paper introduces a distinction between two different types of information goods in order to analyse the processes governing the review and integration of multi-authored contributions to information goods such as those produced through collaborations using the Internet as well as modular information goods such as open source software. It is argued that these distinctions are important because they suggest different organisational arrangements for producing such information goods. This method of analysing the nature of the information goods is employed to examine different organisational arrangements using the analogy of collaboration for traditional publication to identify actors and processes. The analysis of 'contributors' is extended from authorship to collectors and researchers. The paper examines a small survey of the governance procedures employed in projects that employ open source methods for collecting various types of information. We noted the prime role of the recruitment process in the relative success of the examples that we examined (ODP, Wikipedia, Nupedia, MathLearning, VRoma, and Web of Life). For these 'collection' efforts, the role of hierarchy in editing and review of project submissions appears to be important than in open source communities and may be an impediment to recruitment and project development. A number of directions for further research are identified.open source software, collaboration, hierarchies, trust, teams, co-operation