- Scientific Publications and Articles

"Versioning Information Goods"

Publication Title: Versioning Information Goods
Author(s): Hal R. Varian

Year: 1997
Published in: mimeo

Topic of the Publication: - Business Strategy
- Market Development
- Economics
- Pricing
- Information Goods
- Paid Services
- Paid Content
- Versioning Information Goods & Versioning Strategies

One prominent feature of information goods is that they have large fixed costs of production, and small variable costs of reproduction. Cost-based pricing makes little sense in this context; value-based pricing is much more appropriate. Different consumers may have radically different values for a particular information good, so techniques for differential pricing become very important.
There are many forms of differential pricing; a recent survey can be found in Varian [1989]. In this paper we will focus on a particular aspect of differential pricing known as quality discriminationor versioning. These terms describe situations in which the producer provides different qualities/versions of a good which sell at different prices. As we will see below, the point of versioning is to get the consumers to sort themselves into different groups according to their willingness to pay. Consumers with high willingness to pay choose one version, while consumers with lower willingnesses to pay choose a different version. The producer chooses the versions so as to induce the consumers to "self-select"; into appropriate categories.