Session 4: Information Goods

Question 1

What are information goods

Answer 1

consumed from the information and utility behind
The unit product cost is negligible compared to its development costs

Question 2

3 physical natures of information goods

Answer 2

1. Indestructability: frequent updating and licensing
2. transmutability: customizable, easily modified
3. Reproducibility: first unit of an info good involves high costs in development, afterwards are easily reproduceable

Question 3

Production cost of information

Answer 3

F+ CX ( fixed costs + marginal cost * quantity)

Question 4

Distinguish 3 types of differential pricing

Answer 4

1. personalized pricing (auction, ebay, name your own price)
2. Versioning/bundling
3. Group pricing: segment customer base and self for different prices

Question 5

what is producer rent

Answer 5

revenues above marginal costs

Question 6

what is consumer rent

Answer 6

difference between what consumer would have paid and what they are actually paying

Question 7

What is deadweight loss

Answer 7

potential rent neither captured by producers nor consumers so it is lost

Question 8

profit maximizing under competition

Answer 8

Marginal revenue = marginal cost

Question 9

profit maximizing under a monopoly

Answer 9

monopolist can set own price

Question 10

How firms actively segment their consumer base

Answer 10

1. different price sensitivity: group pricing
2. Network effects: when utility of a good depends on how many other people are using it
3. sharing/licensing

Question 11

Reason for bundling

Answer 11

1. reduce dispersion: even out high and low valuation
2. skim off consumer rent
3. products work together
4. introducing new products
5. zero incremental price: an additional unit can be produced without any increase in the total cost of production.
6. increase the switching cost

Question 12

advantages of bundling

Answer 12

1. cost saving for productions and transportation
2. complementarity between bundling products
3. sorting of customer based on their product valuation

Question 13

versioning vs bundling

Answer 13

• versioning: try to find groups with different willingness-to-pay and set profit maximizing version prices accordingly, also known as quality discrimination
• bundling: the joint offer of products that are related to each other to sell them as one unit

Question 14

4 bundling strategy types

Answer 14

1. pure bundling: products are exclusively offered as a bundle
2. mixed bundling: consumers can choose between all single components or the bundle
3. mixed components: consumers can choose between bundle and a limited number of single components, not all components are offered alone
4. pure components: no bundling