Essays on pricing and marketing of information goods

Information goods are typically expensive to produce but cheap to reproduce. This cost structure leads naturally to differential pricing based on individuals' willingness to pay. Innovative use of information technologies in the marketing of information goods opens up business opportunities for firms to increase profit and provide services that better meet their customers' needs. Examples include customized bundling, the shareware marketing strategy, personalization and electronic auctions of various formats. Although these strategies are relatively new and not well understood, they receive widespread applications. In this thesis, we explore economic implications of some of these marketing strategies for information goods. It is comprised of three papers. The first paper (Chapter 2) looks at the optimal number of versions for customized bundling in the presence of consumer heterogeneity, menu cost and cognitive cost. The second paper (Chapter 3) studies the optimality of mixed pricing strategy when the firm is uncertain about consumer's consumption level and willingness to pay. The third paper (Chapter 4) seeks to determine the optimal shareware quality in the presence of piracy and consumers' aversion to uncertainty. Each paper is an independent piece of work and can be understood without reference to the other two.