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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 with 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. [ABSTRACT FROM AUTHOR]

Practice and Policy Oriented Abstract Forums such as Quora, Stack Exchange, Yahoo!Answers, Office Forum, and Photoshop Guru provide a free alternative to the paid support services offered by various software vendors; it is not obvious how a vendor should react to this competition. Specifically, should the vendor sell the product and support separately or should it offer them as a bundle? In practice, we observe both strategies in play, suggesting that there may be merits to each. This paper develops a microeconomic model to uncover how the presence of a forum may shape a vendor's pricing strategy. Our analysis reveals that a forum actually plays a dual role. On the one hand, the forum generates a shadow competition for the vendor-provided support by offering an imperfect substitute. On the other, the forum elevates the appeal of the software product by complementing it with free support. This dual role has interesting implications. When the forum is either weak or strong, in terms of its reach among consumers or its effectiveness in addressing their needs, the vendor's best strategy is to sell the product and support separately. When the strength is moderate, however, it becomes optimal for the vendor to just sell a bundle. The paper describes the reasons behind this surprising nonmonotonicity in the vendor's strategy. This research develops a microeconomic model to study the impact of support forums on the software industry. Motivated by the rapid growth of forums such as Stack Exchange, Quora, and Yahoo! Answers, we examine what impact they could have on a software vendor's pricing strategy. Because these forums provide an alternative, free source for obtaining software support, one might suspect that the shadow competition from them would eat into the profit the vendor makes from selling support services. We find that, although such a conclusion could be right at the forum's initial and formative stages, it may not hold later, especially if the forum generates enough momentum. This is because forums, besides playing a substitutive role, also have a complementary effect. At the initial stages, the substitutive role of the forum dominates. However, if and when the forum grows sufficiently, the complementary role eventually takes control. In the meantime, the vendor can try to mitigate the immediate losses and find temporary relief by adopting a strategy of bundling support services with the product. [ABSTRACT FROM AUTHOR]

The market for security software has witnessed an unprecedented growth in recent years. A closer examination of this market reveals certain idiosyncrasies that are not observed in a traditional market. For example, it is a highly competitive market with over 80 vendors. Yet the market coverage is relatively low. Prior research has not attempted to explain what makes this market so different. In this paper, we develop an economic model to find possible answers to this question. Our model uses existing classification of different types of attacks and models their resulting network effects. We find that the negative network effect from indirect attacks, which is further enhanced by value-based targeted attacks, provides a possible explanation for the unique structure of this market. Overall, our results highlight the unique nature of the security software market, furnish rigorous arguments for several counterintuitive observations in the real world, and provide managerial insights for vendors on market competition. [ABSTRACT FROM AUTHOR]

Application-based pricing is common in telecommunications. Wireless carriers charge consumers more per byte of traffic for text messages than they do for wireless surfing or voice calls. Such pricing is possible because carriers and handset manufacturers have the ability to tag and meter each application. While tagging and metering are possible in the case of closed platforms such as iPhone, they are not in the case of open platforms such as Android. Android is open source with open application programming interfaces, and anyone can develop applications for it. Because the carriers have little control over applications, Android is inherently disruptive of differential pricing across applications. Users and neutrality advocates support Android, believing that it can increase consumer surplus by disrupting differential pricing. However, we show that the equilibrium under differential pricing is different from the equilibrium under open platforms, and it is particularly so with regard to the sets of consumers served and the quantities consumed. With open platforms, certain consumers are either not served or they are served a quantity that is less than what they would be served under differential pricing. Consequently, the consumer surplus and the social surplus are often lower with open platforms. Similarly, firms are expected to prefer differential pricing. We show that this expectation is also not true under certain circumstances in which open platforms and neutral pricing work like a quasi-bundle. [ABSTRACT FROM AUTHOR]

As the ability to measure technology resource usage gets easier with increased connectivity, the question whether a technology resource should be priced by the amount of the resource used or by the particular use of the resource has become increasingly important. We examine this issue in the context of pricing of wireless services: should the price be based on the service, e.g., voice, multimedia messages, short messages, or should it be based on the traffic generated? Many consumer advocates oppose discriminatory pricing across services believing that it enriches carriers at the expense of consumers. The opposition to discrimination has grown significantly, and it has even prompted the U.S. Congress to question executives of some of the biggest carriers. With this ongoing debate on discrimination in mind, we compare two pricing regimes here. One regime, namely, service pricing, involves pricing different services differently. The other one, namely, traffic pricing, involves pricing the traffic (i.e., bytes) transmitted. We show why the common wisdom, that discriminatory pricing across services increases profits and harms consumers, may not always hold. We also show that such discrimination can increase social welfare. [ABSTRACT FROM AUTHOR]

It is commonly believed that piracy of information goods leads to lower profits, which translate to lower incentives to invest in innovation and eventually to lower-quality products. Manufacturers, policy makers, and researchers all claim that inadequate piracy enforcement efforts translate to lower investments in product development. However, we find many practical examples that contradict this claim. Therefore, to examine this claim more carefully, we develop a rigorous economic model of the manufacturer's quality decision problem in the presence of piracy. We consider a monopolist who does not have any marginal costs but has a product development cost quadratic in the quality level produced. The monopolist faces a consumer market heterogeneous in its preference for quality and offers a quality level that maximizes its profit. We also allow for the possibility that the manufacturer may use versioning to counter piracy. We unexpectedly find that in certain situations, lower piracy enforcement increases the monopolist's incentive to invest in quality. We explain the reasons and welfare implications of our findings. [ABSTRACT FROM AUTHOR]