Piracy and Bundling of Information Goods

Journal of Management Information Systems (Forthcoming)

Posted: 1 Apr 2019 Last revised: 17 Jun 2022

See all articles by Chen Jin

Chen Jin

National University of Singapore (NUS) - Department of Information Systems and Analytics

Chenguang (Allen) Wu

Hong Kong University of Science & Technology (HKUST)

Atanu Lahiri

University of Texas at Dallas, Naveen Jindal School of Management

Date Written: June 15, 2022

Abstract

Bundling is considered to be an effective pricing strategy for zero-marginal-cost information goods. Yet, in many information-goods markets, the effectiveness of bundling remains hard to ascertain. This is because information goods exhibit other characteristics as well, which can potentially interfere with a manufacturer’s bundling decision. For instance, they are also prone to piracy, and it is not obvious what impact, if any, piracy can have on the efficacy of bundling. To address this issue rigorously, we reexamine the classic bundling problem in the backdrop of piracy and show that piracy can severely diminish the appeal of bundling to a monopolist seller. Evidently, bundling abets piracy and, in certain situations, so much so that the losses from piracy more than nullify the traditional benefits of bundling. This insight is in fact fairly generalizable. The implication for manufacturers of digital goods is that they need to take piracy into consideration in their bundling decision. In particular, they should consider refraining from bundling when the illegal products are close substitutes for the legal ones.

Keywords: Information goods, piracy, pricing, bundling

Suggested Citation

Jin, Chen and Wu, Chenguang (Allen) and Lahiri, Atanu, Piracy and Bundling of Information Goods (June 15, 2022). Journal of Management Information Systems (Forthcoming), Available at SSRN: https://ssrn.com/abstract=3336488 or http://dx.doi.org/10.2139/ssrn.3336488

Chen Jin

National University of Singapore (NUS) - Department of Information Systems and Analytics ( email )

Singapore

Chenguang (Allen) Wu

Hong Kong University of Science & Technology (HKUST) ( email )

Room 5559A, Academic Building
Hong Kong

Atanu Lahiri (Contact Author)

University of Texas at Dallas, Naveen Jindal School of Management ( email )

University of Texas at Dallas
Richardson, TX 75080
United States

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