Vertically Di fferentiated Information Goods: Monopoly Power Through Versioning

Abstract:     
In this paper we analyze price, quality and versioning strategies that information goods producers use to deter entry and maintain market power. We nd that under competition, rms provide higher quality information goods with a better \price-quality ratio" than in monopoly. In a Stackelberg game, the leader rm that provides the high quality information good decreases its quality level to maintain a rst mover advantage. We also show that a monopolist can implement versioning strategies in the low-end market to deter entry, and dierent versions exist as a signal to prevent potential entry. A vertically dierentiated market is often referred to as a \natural oligopoly" for traditional goods, whereas it can be regarded as a \natural monopoly" for information goods.

Number of Pages in PDF File: 37

Keywords: Information Goods, Versioning Strategies, Pricing Strategies, Duopoly Competition, Entry Deterrence

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