Why give away something for nothing? Investigating virtual goods pricing and permission strategies

Authors:
Sulin Ba;Dan Ke;Jan Stallaert;Zhongju Zhang
Affiliations:
University of Connecticut, Storrs, CT;University of Connecticut Storrs, CT;University of Connecticut Storrs, CT;University of Connecticut Storrs, CT
Venue:
ACM Transactions on Management Information Systems (TMIS)
Year:
2010

Citing 13
Cited 0

Optimal price skimming by a monopolist facing rational consumers

Management Science
Software piracy: an analysis of protection strategies

Management Science
Information rules: a strategic guide to the network economy

Information rules: a strategic guide to the network economy
Bundling Information Goods: Pricing, Profits, and Efficiency

Management Science
Bundling and Competition on the Internet

Marketing Science
Information Goods Pricing and Copyright Enforcement: Welfare Analysis

Information Systems Research
Managing Digital Piracy: Pricing and Protection

Information Systems Research
Nonlinear Pricing of Information Goods

Management Science
Managing Piracy: Pricing and Sampling Strategies for Digital Experience Goods in Vertically Segmented Markets

Information Systems Research
Consumer Search and Retailer Strategies in the Presence of Online Music Sharing

Journal of Management Information Systems
Information Goods and Vertical Differentiation

Journal of Management Information Systems
Customized Bundle Pricing for Information Goods: A Nonlinear Mixed-Integer Programming Approach

Management Science
Research Note---When Is Versioning Optimal for Information Goods?

Management Science

Quantified Score

Hi-index	0.00

Visualization

Abstract

With the rapid increase of virtual goods created for virtual world exchanges and the record growth of user-to-user transactions in these in-world economies, an important question is how a creator sets prices for a virtual good so as to maximize her profit from her creation. Virtual goods share similar economic properties (such as substantial production cost and negligible marginal cost) with other types of digital goods. However, one aspect that distinguishes a virtual good is that consumers in a virtual world may want to use multiple copies of the identical good at the same time, and such simultaneous use of multiple copies of the identical good increases a consumer's utility. In this research, we focus on the COPY permission of virtual goods. We develop an economic model to examine under what conditions the COPY permission setting leads to the highest profit for the creator of a virtual good, and what the pricing strategies are in a dynamic setting when such permission choices are present. Theoretical and practical implications of the research are discussed.