Essays on Economics of Information Goods

Abstract

The chapter of Interactions, Competition and Innovation in a Service-Oriented Internet: An Economic Model presents a new economic approach for studying competition and innovation in a complex and highly interactive system of network providers, users, and suppliers of digital goods and services (i.e., service providers). It employs Cournot and Bertrand games to model competition among service providers and network providers, respectively, and develops a novel unified model to capture the interaction and com- petition among these players in a service-oriented Internet. Incentives for service and network innovation are studied in this model. The chapter of An essay on the Optimum Price Strategy for Information Goods: A Multi-Product Seller and Heterogeneous Buyers presents a conventional economic model of flat rates as a form of bundling, in which consumption can be extremely unequal, and can follow the ubiquitous Pareto distribution. For a monopoly service provider with negligible marginal costs, flat rates turn out to maximize profits in most cases. The advantage of evening out the varying preferences for different services among users overcomes the disadvantage of the heaviest users consuming more than the average users. The model is tractable enough that it allows for exploration of the effects of non-zero marginal costs (which in general strengthen the case for metered pricing), and of welfare effects. The chapter of The effect of correlated reservation price on profitability of bundle sale buyers’ surplus presents a new approach of studying the optimality of bundling substi- tute or complement goods. We assume there is a single seller of information goods. We study how profit and surplus will be affected when buyers consider a pair of goods as substitute or complement goods. The seller’s profit and buyers’ surplus with bundle sale and separate sale are compared. Different distributions of buyers’ willingnesses to pay are studied. We found that the effect of correlation on profitability of bundle sale as well on buyers’ surplus depends on the distribution of buyers’ willingness to pay. Our results show that there is advantage for separate sale when buyers’ willingnesses to pay are more disperse or when buyers view goods as complementary goods. There is; however, always disadvantage to separate sale when there are more independent goods than dependent goods. Our findings in this chapter are based on simulation study not a general mathematical optimization.