The Challenge of Revenue Sharing with Bundled Pricing: An Application to Music

11 Pages Posted: 27 Feb 2013

See all articles by Benjamin Shiller

Benjamin Shiller

Brandeis University - Department of Economics

Joel Waldfogel

University of Minnesota - Twin Cities - Carlson School of Management; National Bureau of Economic Research (NBER); University of Minnesota - Twin Cities - Department of Economics

Date Written: April 2013

Abstract

Although bundling can substantially increase profits relative to standalone pricing, particularly for zero‐marginal‐cost information products, it has one major problem: bundling produces revenue that is not readily attributable to particular pieces of intellectual property, creating a revenue division problem. We evaluate several possible solutions using unique song valuation survey data. We find the Shapley value, a well‐motivated theoretical solution, is universally incentive compatible (all bundle elements fare better inside the bundle than under standalone pricing), but revenue‐sharing schemes feasible with readily available consumption data are not. Among feasible schemes, Ginsburgh and Zang's modified Shapley value performs best.

JEL Classification: C71, D79, L14

Suggested Citation

Shiller, Benjamin and Waldfogel, Joel, The Challenge of Revenue Sharing with Bundled Pricing: An Application to Music (April 2013). Economic Inquiry, Vol. 51, Issue 2, pp. 1155-1165, 2013, Available at SSRN: https://ssrn.com/abstract=2225685 or http://dx.doi.org/10.1111/j.1465-7295.2011.00442.x

Benjamin Shiller (Contact Author)

Brandeis University - Department of Economics ( email )

Waltham, MA 02454-9110
United States
781-736-5205 (Phone)

HOME PAGE: http://benjaminshiller.com

Joel Waldfogel

University of Minnesota - Twin Cities - Carlson School of Management ( email )

19th Avenue South
Minneapolis, MN 55455
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

University of Minnesota - Twin Cities - Department of Economics ( email )

271 19th Avenue South
Minneapolis, MN 55455
United States

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