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CESifo Economic Studies 2005 51(2-3):329-358; doi:10.1093/cesifo/51.2-3.329
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Right arrow L82 - Entertainment; Media
Right arrow L86 - Information and Internet Services; Computer Software
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© Ifo Institute for Economic Research, Munich, 2005

Versioning in the Information Economy: Theory and Applications

Paul Belleflamme*

* CORE and IAG, Université catholique de Louvain 34 Voie du Roman Pays, B-1348 Louvain la Neuve, Belgium e-mail: belleflamme{at}core.ucl.ac.be.

Price discrimination consists in selling the same product to different buyers at different prices. When sellers cannot relate a buyer's willingness to pay to some observable characteristics, price discrimination can be achieved by targeting a specific package (i.e., a selling contract that includes various clauses in addition to price) for each class of buyers. The seller faces then the problem of designing the menu of packages in such a way that each consumer indeed chooses the package targeted for her. This practice, known as versioning (or as second-degree price discrimination), is widespread in the information economy. In this paper, we propose a simple unified framework to study the general theory behind versioning and to consider a number of specific versioning strategies used in the information economy (namely, bundling, functional degradation and conditioning prices on purchase history). (JEL L82, L86, K11, O34)


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