Unlike ordinary physical goods, information goods bear extremely high fixed costs and virtually zero marginal costs for reproduction and distribution, thus scheming out differential pricing strategies is crucial for producers to reap profit. As discussed in class, the price discrimination can be classified into 3 groups: First degree price discrimination (perfect price discrimination), second degree price discrimination (group pricing ) and third degree price discrimination( versioning price).
Practically, perfect price discrimination is too ideal a pricing strategy because of its implementation difficulty. As for group pricing strategy, the marginal revenue for incremented sale is already very low, thus it won’t make sense to conduct group pricing strategy for information goods. Finally, third degree pricing has been applied in many ways in terms of information goods pricing. Principles of classification include user segmentations, product classifications, etc. However, someone has pointed out that there still exists certain feasibility problems hereof. For example, airline company intends to offer differentiated prices to business travelers and tourists, but how to distinguish business travelers from tourists is a problem.
However, for information goods, costs come not merely from reproduction and distribution. Cognition costs, which refers to time and energy that consumers have to invest in certain information goods, constitute a unavoidable part of product costs. Typical example include the different user interfaces and usabilities of Microsoft Office suite and other similar softwares.
Another pricing theory mentioned in class is bundling. Mixed bundling wins overt competitive edge over pure bundling because of its flexibility in choices for consumers. One interesting comments in the article” Bundling, pure bundling and mixed bundling” raises questions of a weird phenomenon that people tends to buy things that they even don’t want as a bundling. Similarly, bundling boosts sales for low-use journals which might be otherwise cancelled by subscribing institutions [HaOp99]. One rationale behind it might be derived from consumers’buying behavior of gaining extra advantages even if they don’t want the things contained.
So does the revenue of information goods producers really come merely from consumers payment? Is there any information goods almost offered for free but are still operating robustly? Yes, there really is. In reality many information goods around us are free of costs, for instance, newspaper and magazines. The bulk of its revenue comes from advertising. They would be more than happy if more consumers are willing to take a look of their products.
Source:
https://www.forbes.com/sites/hbsworkingknowledge/2013/01/18/product-bundling-is-a-smart-strategy-but-theres-a-catch/#24aa258d7a51
http://firstmonday.org/ojs/index.php/fm/article/view/473/394#SECTION0003
https://www.helpscout.net/consumer-behavior/
