Yannis Bakos* and Erik Brynjolfsson**
This Draft: June 1997
Presented at the Conference on
Internet Publishing and Beyond: The Economics of Digital
Information and Intellectual Property.
Kennedy School of Government, Harvard University, Cambridge,
Massachusetts
We analyze pricing strategies that are based on aggregation or disaggregation of digital information goods. For instance, bundling, site licensing, and subscription pricing can be analyzed as strategies that aggregate consumer utility across different goods, different consumers, or different time periods, respectively. On the other hand, unbundling magazine articles for individual sale, or using micropayments for renting software "applets" correspond to a strategy of disaggregation. We show that reductions in marginal costs made possible by low-cost digital processing and storage of information will favor aggregation, while reductions in transaction and distribution costs made possible by ubiquitous networking tend to make disaggregation of information goods more profitable. Our analysis demonstrates how the increasing availability of information goods over the Internet will lead to increased use of both disaggregation-based pricing strategies taking advantage of micropayment technologies, and aggregation strategies where information goods will be offered in bundles, site licenses, and subscriptions.
Copyright © 1997 by Yannis Bakos and Erik Brynjolfsson