Behaviour-based pricing for multi-version information goods

AbstractBehaviour-based pricing (BBP) is commonly observed in the information goods industry. Information goods providers typically sell multi-version products and have implemented different BBP strategies for their products. However, previous research on BBP is mostly limited to single-version products, which may not effectively guide practical decision-making regarding multi-version products. This gap sparks interest in how BBP can be applied to multi-version information goods. We show that the equilibrium pricing strategy depends on the quality gap between the products and how much consumers and the firm value future benefits. The firm should implement BBP for both high- and low-quality products if it values future benefits more than consumers do. If consumers value future benefits more than the firm, the firm should not implement BBP for either product. Moreover, when the firm and consumers value future benefits equally, the firm should only practice BBP for the low-quality product. Our calculations of consumer surplus and social welfare reveal that the absence of BBP doesn't always lead to the maximum benefits for consumers and society. Interestingly, if the firm values future benefits more than its consumers do, applying BBP only to high-quality products or both products may lead to higher consumer surplus and social welfare.KEYWORDS: Behaviour-based pricingmulti-version information goodsdigital economyproduct linesocial welfare AcknowledgmentsThe authors sincerely thank the editors and anonymous reviewers for their insightful comments and suggestions.Disclosure statementNo potential conflict of interest was reported by the author(s).Data availability statementThe authors confirm that the data supporting the findings of this study are available within the article.Notes1 In the following, we use the terms ‘sold multi-version products’ and ‘sold products in a product line’ interchangeably.2 The monopoly assumption is motivated by content providers' ‘original content’, as explained later.3 More recently, content firms have invested much in original content production. For example, Netflix has budgeted more than $17 billion for investment in new content in 2022, which is up 25% from 2021 (Grimes Citation2022). The exclusivity of original content leaves consumers with no choice but to watch that content using the firm's facilities, which makes the firm a monopolist of some specific content, even when competitors have somewhat similar content.4 Currently, firms can easily display different prices to different consumers through means like distributing coupons.5 The equilibrium strategies are the same under both settings, which has been justified by Rhee and Thomadsen (Citation2017).Additional informationFundingJingyan Li and Xiang Ji appreciate the financial support from the National Natural Science Funds of China (Nos. 72171219, 71921001, 72371232, 71971203), the New Liberal Arts Fund of USTC (FSSF-A-230104), and the Fundamental Research Funds for the Central Universities (WK2040000027).Notes on contributorsJingyan LiJingyan Li is a Ph.D. candidate in the School of Management at the University of Science and Technology of China, Hefei, China. Her research interests include price discrimination, digital content platforms, and supply chain management. In this paper, she is mainly responsible for writing -- reviewing, and editing.Xiang JiXiang Ji is an Associate Professor in the School of Management at the University of Science and Technology of China, Hefei, China. His research interests include supply chain management, data-driven decision analytics, and OM-Marketing interface. In this paper, he is mainly responsible for supervision, writing - reviewing, and editing.Sandun C. PereraSandun C. Perera is an Associate Professor of Business Analytics and Operations at the College of Business, University of Nevada, Reno. His research focuses on Disruptive Technologies in Operations Management, Supply Chain Management, Healthcare Operations Management, and interfaces between Operations and other functional areas in business. In this paper, he is mainly responsible for supervision, writing -- review, and editing.