Versioning and Information Dissemination: A New Perspective
Information Systems Research, Forthcoming
38 Pages Posted: 28 Dec 2016 Last revised: 23 Mar 2018
Date Written: October 28, 2017
That versioning can be effective for information goods is well known. In particular, related literature shows that, when consumers underestimate a product, it is often better for the manufacturer to offer a base version of the product along with the fully-featured version. This is because the base version lets consumers discover their true valuations, allowing the manufacturer to set a high price for the full version. This finding is also consistent with broader literature in economics, which contends that informing consumers cannot be optimal unless doing so also improves their average willingness-to-pay. Absent any such upward revision, keeping consumers in the dark becomes profit-wise equivalent to first-degree price discrimination. This equivalence, although correct, does not hold when a fraction of consumers is fully aware of the true valuation to begin with. Accordingly, we propose a new perspective, and explain why a manufacturer should consider versioning even when consumers do not underestimate the product and their average willingness-to-pay does not change after exposure to it. The point of this paper is to show that the presence of an informed segment of consumers fundamentally changes the information structure of the market, elevating in the process the relative value of information dissemination.
Keywords: Experience good, information good, consumer learning, versioning
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