Digital Products and Pricing

In this nascent field of research in electronic commerce, economists already have developed multiple—often contradictory—theories of how digital products should be distributed, sold and priced. Some argue for bundling (a sort of flat fee) while others argue for micropayments (a sort of usage-based pricing). Each has some evidence for justification and mathematical as well as economic proofs (see Chapter 8 for more information on pricing and bundling). However, this section cautions against applying existing models of physical markets to the electronic marketplace. Those who see electronic commerce as simply an alternative marketing channel find spurious similarities between digital products and their physical counterparts, and argue that electronic commerce pricing will be no different from physical markets where vendors prefer bundling and subscription. Although some products and services will indeed be better served by bundling and subscription, this practice will be only a small part of how digital products will be sold in electronic commerce. Instead, the changing nature of information goods and market processes will demand more flexible distribution and pricing schemes, such as microproducts and micropayments.

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