Y. Bakos and E. Brynjolfsson. Bundling information goods: Pricing, profits and e#ciency. In D. Hurley, B. Kahin, and H. Varian, editors, The Economics of Digital Information Goods. MIT Press, Cambridge, Massachusetts, 1999.  Home/Search   Document Not in Database   Summary   Related Articles   Check

....price schedules may be changed quickly and easily. Software agents can evaluate and select from among many complex pricing schemes more easily than a human, without suffering from the confusion or frustration that humans experience when faced with complicated pricing schemes. Prior authors [6, 2, 15] have analyzed the benefit of bundling and other pricing schemes based on the assumption that the producer knows the distribution of consumer preferences. In practice, producers are unlikely to have complete knowledge of all relevant parameters of this distribution. Thus, if there is more than one ....

Y. Bakos and E. Brynjolfsson. Bundling information goods: Pricing, profits and efficiency. In D. Hurley, B. Kahin, and H. Varian, editors, The Economics of Digital Information Goods. MIT Press, Cambridge, Massachusetts, 1999.

....distributed almost without cost via the Internet. The Internet is thus precipitating a dramatic reduction in the marginal costs of production and distribution for these goods, while micropayment technologies are reducing the transaction costs for their commercial exchange. Bakos and Brynjolfsson [6] point out that this creates new opportunities for repackaging content through strategies such as bundling, site licensing, subscriptions, rentals, differential pricing and per use fees. All of these schemes can be thought 38 August 1998 Vol. 41, No. 8 COMMUNICATIONS OF THE ACM Unbundled sales ....

....yet these costs are much lower on the Internet. Thus software and other types of content may be increasingly disaggregated and metered, as on demand software applets or as individual news stories and stock quotes. Independent of the cost considerations mentioned previously, Bakos and Brynjolfsson [6] show that aggregation of large numbers of information goods can be a powerful strategy that results in higher profits for sellers as well as a socially desirable wider distribution of the goods. This is due to the ability of aggregation to change the shape of the demand curve faced by the sellers ....

Bakos, Y. and Brynjolfsson, E. Bundling information goods: Pricing, profits and efficiency. Working paper, Stern School of Business, New York University, 1997; www.stern.nyu.edu/~bakos/big.pdf.

....exhibits very low marginal cost, much like any other information good. Therefore, it is not surprising that competition drives actual prices to very low levels, even to nominal zero values [Jew and Nicholls, 1999] and that internet access is often bundled with other information services (e.g. AOL) [Bakos and Brynjlofsson, 1997]. Consequently, pricing turns to consumer valuations as the basis for determining how much to charge. In the presence of heterogeneous user preferences regarding quality of service (i.e. delay and packet loss) the problem becomes a standard exercise in price discrimination. Using such models it ....

BAKOS, Y. and E. BRYNJOLFSSON (1997). Bundling Information Goods: Pricing, Profits and Efficiency. In Proceedings of the Conference on Economics of Digital Information and Intellectual Property, Harvard University.

.... Pricing Models The two most familiar pricing models in practice have only one parameter: linear pricing (a constant price per item) and subscription or bundling (one price for the entire bundle) a) Pure Bundling Bundling has recently received substantial attention for information goods [BB99, CS99]. The price schedule is: T (q) 0 : q = 0 PB : q 0 (2) Pro t is = PB Z k ks f(k)dk (3) where k s = 2PB wN , the lowest k i that will subscribe. For lower k i , the value of the bundle of N items ( R k i N 0 (n; k i )dn) is not enough to cover the price of the bundle. k s is ....

Y. Bakos and E. Brynjolfsson. Bundling information goods: Pricing, prots and e- ciency. In D. Hurley, B. Kahin, and H. Varian, editors, The Economics of Digital Information Goods. MIT Press, Cambridge, Massachusetts, 1999.

....for future work in section 7. 1 2. RELATED WORK Selling heterogeneous content as a bundle is not a new concept in the economics literature. Early papers considered a single provider bundling two goods [1, 31, 36] More recent papers have extended the analysis to a monopolist bundling N goods [3, 8]. Analysis of a complete N good bundling model with 2 N bundle combinations and N dimensional consumer preferences quickly becomes intractable, even when competition is not considered. As a result, these papers restrict themselves to two simple alternatives: unbundling (selling each article in ....

Y. Bakos and E. Brynjolfsson. Bundling information goods: Pricing, profits and efficiency. In D. Hurley, B. Kahin, and H. Varian, editors, The Economics of Digital Information Goods. MIT Press, Cambridge, Massachusetts, 1998.

....version of the preference learning problem discussed above. If a producer can learn the valuations placed on articles by a set of consumers, it can then determine the optimal pricing strategy. Bundling within an information economy has received a great deal of attention in the economic literature (Bakos Brynjolfsson 1998; Chuang Sirbu 1998; Fay MacKie Mason 1998) The primary way in which bundling of information goods differs from the bundling of traditional goods (where bundling is typically not preferred) is that information goods have a negligible marginal cost to reproduce. This can lead to scenarios in ....

Bakos, Y., and Brynjolfsson, E. 1998. Bundling information goods: Pricing, profits and efficiency.

.... (monopoly, duopoly, oligopoly) Economides Himmelberg 1995, Wiese 1990) Other prominent areas of interest are pricing and licensing to competitors (Economides 1996) pricing and switching costs (Klemperer 1987a, 1987b) pricing and timing of upgrades (Thum 1995, Yang 1997) bundling strategies (Bakos Brynjolfsson 1999). Most of the existing approaches use equilibrium analysis to analytically determine the results of pricing strategies in terms of market share. Network effects are considered in a rather general way, focussing only on the installed base of the whole market. The importance of personal ....

Bakos, Y./Brynjolfsson, E. (1999): Bundling Information Goods: Pricing, Profits and Efficiency, Working Paper (1999), Stern School of Business, New York University, forthcoming in Management Science.

.... Pricing Models The two most familiar pricing models in practice have only one parameter: linear pricing (a constant price per item) and subscription or bundling (one price for the entire bundle) a) Pure Bundling Bundling has recently received substantial attention for information goods [BB99, CS99]. The price schedule is: T (q) ae 0 : q = 0 PB : q 0 (2) Profit is Pi = PB Z k ks f(k)dk (3) where k s = 2PB wN , the lowest k i that will subscribe. For lower k i , the value of the bundle of N items ( R k i N 0 (n; k i )dn) is not enough to cover the price of the bundle. k s ....

Y. Bakos and E. Brynjolfsson. Bundling information goods: Pricing, profits and efficiency. In D. Hurley, B. Kahin, and H. Varian, editors, The Economics of Digital Information Goods. MIT Press, Cambridge, Massachusetts, 1999.

....conditions in which firms prefer to offer comprehensive bundles at a single price and those in which they prefer to sell items individually. Although ours is the first work focusing on competitive strategies, the bundling and pricing of information goods has been an active area in recent research [1], 2] We have also studied price dynamics when competing brokers search a restricted price and product space [5, 6, 4] Price instability, characterized as price wars , was prevalent. In this paper we examine a considerably more general problem, although for this initial foray we maintain some ....

Y. Bakos and E. Brynjolfsson. Bundling information goods: Pricing, profits and efficiency. In D. Hurley, B. Kahin, and H. Varian, editors, The Economics of Digital Information Goods. MIT Press, Cambridge, Massachusetts, 1998.

....will be noted, most instances of the models lack this property and give rise to ruinous price wars in the absence of collusion. Our analysis of competitive dynamics is set against a background of research on strategies for pricing electronic goods by a monopolist or single firm, for example [1, 2, 3, 8, 10, 11]. Summary discussions of that work appear in [4, 9] The present research, which is overviewed in [4] was prompted by the question of what might transpire when competing firms offer similar products but use different pricing policies. A more specific motivating question arose from the observation ....

....Figure 3 shows f 1 as the bowed curve through i 1 Gamma 2 ; 1 Gamma 2 j . Figure 3 about here Let f 2 (p) be the unique q that satisfies (6) Clearly, f 2 (0) 0 and f 2 is increasing and continuous as shown in Figure 3. We verify three other properties of f 2 : 1] f 2 (p) p for p 0; [2] f 0 2 (0) 1=r, where r 1 is the unique positive solution to ln(r 1) r(2r 1) r 1) 2 when k = 2 ; 11) 1 (r 1) k k Gamma 1 k Gamma 2 (r 1) 2 Gamma 2k Gamma 1 k Gamma 1 (r 1) 1 = 1 (k Gamma 1) k Gamma 2) when k 2 ; 12) 3] r 1 . Property [1] says ....

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Bakos, Y., Brynjolfsson, E.: Bundling information goods: Pricing, profits and efficiency. In: Hurley, D., Kahin, B., Varian, H. (eds.) Internet publishing and beyond: The economics of digital information and intellectual property. Cambridge, MA: MIT Press 1997

....way to capture the essence of consumer s willingness topay across the different articles. Zahray and Sirbu (1990) attempt to capture the heterogeneity in consumer preferences for academic journals, albeit in one variable, the reservation price for the journal. A similar approach is taken by Bakos and Brynjolfsson (1997), where consumers are characterized by a single type variable w, and consumer valuations of goods are i.i.d. independent and identically distributed) By employing a single variable, both models can only capture consumer valuations for the bundle in its aggregate. This is adequate in the pure ....

....the art in cryptography. Other sources of payment system costs such as customer service, fraud protection, chargebacks and back office accounting may decline only slowly over time, if at all. 5. Conclusions Several recent independent works suggest that bundling is desirable for information goods (Bakos and Brynjolfsson, 1997; Fishburn et al. 1997; Varian, 1995) The current work demonstrates, however, that a different conclusion may be drawn when the important distinction between mixed and pure bundling is made. While mixed bundling is always the dominant strategy, our results also show that pure bundling may, under ....

Bakos, Y. and E. Brynjolfsson, 1997, Bundling information goods: pricing, profits and efficiency, in: Proceedings of the Conference on Internet Publishing and Beyond: Economics of Digital Information and Intellectual Property, Cambridge MA.

....is reflective of a new class of opportunities for intermediaries acting as content aggregators. Digital information goods, such as a news article, a digital image or a song, allow perfect copies to be created and distributed almost costlessly via the Internet. As shown by Bakos and Brynjolfsson [3], a strategy of selling a bundle of many distinct information goods for a single price often yields higher profits and greater efficiency than selling the same goods separately. In other words, the nature of information goods and the emergence of an electronic market infrastructure that allows ....

Bakos, Y. and Brynjolfsson, E. Bundling Information Goods: Pricing, Profits and Efficiency. Working Paper, MIT Center for Coordination Science, December (1996).

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Y. Bakos and E. Brynjolfsson. Bundling information goods: Pricing, profits and e#ciency. In D. Hurley, B. Kahin, and H. Varian, editors, The Economics of Digital Information Goods. MIT Press, Cambridge, Massachusetts, 1999.

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Y. Bakos and E. Brynjolfsson. Bundling information goods: Pricing, profits and efficiency. In B. Kahin and H. Varian, editors, Internet Publishing and Beyond: The Economics of Digital Information and Intellectual Property. MIT Press, Cambridge, Massachusetts, 2000.

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Y. Bakos and E. Brynjolfsson. Bundling information goods: Pricing, profits and efficiency. In D. Hurley, B. Kahin, and H. Varian, editors, The Economics of Digital Information Goods. MIT Press, Cambridge, Massachusetts, 1998.

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Bakos, Y. and Brynjolfsson, E. Bundling information goods: pricing, profits and efficienc. Management Science (Dec. 1999).

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Bakos, Y. and Brynjolfsson, E., 1999. Bundling information goods: pricing, profits and efficiency. Management Science 45 (12), 1613-1630.

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Bakos, J. Y., and Brynjolfsson, E., #999. Bundling Information Goods: Pricing, Profits and 22 E#ciency. Management Science, 45 (#2), #6#3-#630.

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Yannis Bakos and Erik Brynjolfsson. Bundling information goods: Pricing, profits and e#cience. Management Science, Dec 1999.

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Yannis Bakos and Erik Brynjolfsson. Bundling information goods: Pricing, profits and efficiency. In D. Hurley, B.Kahin, and Hal Varian, editors, The Economics of Digital Information Goods. MIT Press, Cambridge, Massachusetts, 1998.

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Yannis Bakos and Erik Brynjolfsson. Bundling information goods: Pricing, profits and efficiency. In D. Hurley, B.Kahin, and Hal Varian, editors, The Economics of Digital Information Goods. MIT Press, Cambridge, Massachusetts, 1998.

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Y. Bakos and E. Brynjolfsson. Bundling information goods: Pricing, profits and e#- ciency. MIT Sloan School working paper, 1998.

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Y. Bakos and E. Brynjolfsson. Bundling information goods: Pricing, prots and e- ciency. MIT Sloan School working paper, 1998.

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Y. Bakos and E. Brynjolfsson. Bundling information goods: Pricing, profits and e#- ciency. MIT Sloan School working paper, 1998.

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Y. Bakos and E. Brynjolfsson. Bundling information goods: Pricing, pro#ts and e#ciency. In D. Hurley, B. Kahin, and H. Varian, editors, The Economics of Digital Information Goods. MIT Press, Cambridge, Massachusetts, 1998.

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