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Pricing, Quality-Setting, and Order of Plays in an Online Information Market

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  • Sang-Ho Lee

    (Department of Economics, Chonnam National University, Korea)

Abstract

This paper considers the issue of quality differentiation in an online information market in which one network provider and two content providers compete over both prices and con-tent qualities for the real-time network delivery of digital information products. We examine the order of plays in games of vertical product differentiation and show that sequential price choice of network providers reduces content differentiation among online information prod-ucts, so that intense price competition among content providers results. However, sequential price competition reduces not only social welfare but also consumers' surplus.

Suggested Citation

  • Sang-Ho Lee, 2002. "Pricing, Quality-Setting, and Order of Plays in an Online Information Market," International Journal of Business and Economics, College of Business and College of Finance, Feng Chia University, Taichung, Taiwan, vol. 1(3), pages 179-191, December.
  • Handle: RePEc:ijb:journl:v:1:y:2002:i:3:p:179-191
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    References listed on IDEAS

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    1. Anderson, Simon P. & Engers, Maxim, 1992. "Stackelberg versus Cournot oligopoly equilibrium," International Journal of Industrial Organization, Elsevier, vol. 10(1), pages 127-135, March.
    2. Wauthy, Xavier, 1996. "Quality Choice in Models of Vertical Differentiation," Journal of Industrial Economics, Wiley Blackwell, vol. 44(3), pages 345-353, September.
    3. Avner Shaked & John Sutton, 1982. "Relaxing Price Competition Through Product Differentiation," Review of Economic Studies, Oxford University Press, vol. 49(1), pages 3-13.
    4. Shy,Oz, 2001. "The Economics of Network Industries," Cambridge Books, Cambridge University Press, number 9780521805001, March.
    5. Boyer, Marcel & Moreaux, Michel, 1987. "On Stackelberg Equilibria with Differentiated Products: The Critical Role of the Strategy Space," Journal of Industrial Economics, Wiley Blackwell, vol. 36(2), pages 217-230, December.
    6. Aoki, Reiko & Prusa, Thomas J., 1997. "Sequential versus simultaneous choice with endogenous quality," International Journal of Industrial Organization, Elsevier, vol. 15(1), pages 103-121, February.
    7. Choi, Chong Ju & Shin, Hyun Song, 1992. "A Comment on a Model of Vertical Product Differentiation," Journal of Industrial Economics, Wiley Blackwell, vol. 40(2), pages 229-231, June.
    8. Steve Dowrick, 1986. "von Stackelberg and Cournot Duopoly: Choosing Roles," RAND Journal of Economics, The RAND Corporation, vol. 17(2), pages 251-260, Summer.
    9. Economides, Nicholas, 1993. "Quantity leadership and social inefficiency," International Journal of Industrial Organization, Elsevier, vol. 11(2), pages 219-237, June.
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    More about this item

    Keywords

    sequential price competition; content differentiation; online information product;

    JEL classification:

    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
    • D4 - Microeconomics - - Market Structure, Pricing, and Design

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