Bundling information goods in competitive environments

Information goods, such as journal articles, are characterized by high fixed (first-copy) costs, but low costs for the production of additional copies. Standard linear pricing for this type of good cannot result in efficient production or distribution because pricing at (near-zero) marginal cost would not recover the initial fixed costs. Recent technological advances in computing and digital communication have reduced duplication and distribution expenses via electronic delivery, further exaggerating this cost structure. However, the flexibility of digital technology also permits a wider range of responses to the cost problem. For example, it is not economically feasible for the New York Times to sell articles individually when it is necessary to print articles separately and physically deliver then to customers through the postal system. However, the New York Times can (and actually does) place its archived articles on its Web site. Then, consumers download and pay for only those articles they desire to read.; In the dissertation, I examine the strategic effects of bundling information goods. Non-linear pricing schemes such as bundling are not a new concept in economics. However, most of the literature on bundling has focused on how a monopoly may use bundling as a price discrimination tool. I instead focus on the strategic implications of bundling in an oligopoly. I show that bundling remains an effective tool for recovering firms' original set-up costs in a competitive environment. However, it also results in rather fierce competition between electronic publishers. Lower industry profit leads to lower incentives to invest in content. Thus, a monopoly is likely to produce closer to the efficient amount of content. But, the much higher prices on existing content that a monopolist charges result in efficiency losses in distribution that tend to outweigh the efficiency gains from having more content. As a consequence, a duopoly is welfare-improving even though it is likely to result in fewer total information goods.; In addition, I explore how the degree of substitution between products affects the distribution of surplus among market participants. And, I consider the case where firms control the mix of content across a variety of possible categories.