E: Digital Goods and Pricing

Question 1

Charakterise a digital good

Answer 1

Costs: Fix high, marginal near zero
Easily reproducible
No storage cost, 24h availability, low entry barriers, global market accessible
Ad hoc fixes and versioning easy

Question 2

Explain the advantages of digital products over physical products using the Music as a service vs as a download-to-own analogy:

Answer 2

Music as a service: Only one release time –> no versioning necessary. Maximize area.
Download-to-own:
Decreasing pricing scheme due to versioning. Expiration date of products”
Customers anticipate future price drops and therefore do not buy on release–> Coase Conjuncture.

Question 3

Define Coast Conjuncture: What strategies counteract ist?

Answer 3

Coase Conjuncture: Sellers loose market power (even in monopolies) due to comsumers anticipating future price cuts and delaying their purchases.
Strategies:
Comittment to stable prices
Renting or Subscribing models.

Question 4

Describe the long tail Phenomemon:

Answer 4

Virtual markets have far more niche goods than hits.
Cost to reach these goods are decreasing.
These niches add up. The niche market together comprises a market rivaling the market of the hits.

Question 5

What are three preconditions for long tail markets?

Answer 5

Technology ( Computer & Software)
The tools of distribution (Internet)
Connect Supply & demand (Matchmaking measures)

Question 6

What are three implications for long tail markets?

Answer 6

Selling less of more
Minimizing the tyranny of the highest common denominator
Long Tail vs Blockbuster effect

Question 7

Explain the long tail fallacy:

Answer 7

1. The increased availability of niche products shifts demand towards the long tail
   2.Increased availability of diverse niche products drives demand towards few distinguished top sellers.

Question 8

Describe 1st Degree Price Differenciation:

Answer 8

Ideal case: Sellers make use of information on buyers WTP to maximize revenue. This works by matching the individual willingness to pay.

Question 9

Describe 2nd Degree Price Differenciation:

Answer 9

Versioning: More or less same product at different price levels: Customers choose versions.
Product differentiation through quality, funtionality.

Question 10

Describe Bundeling:

Answer 10

Bundle two products together to maximize revenue. Normal form possible as well as mixed form of bundeling. –> requires customers WTPs

Question 11

Describe 3rd Degree Price Differenciation:

Answer 11

Focus on customers -> openly observable characteristics.
allocate into groups (clustering)
make offers for groups to maximize revenue.