Bundling Information Goods Under Endogenous Quality Choice
Using the cable industry as an illustrative case, this article investigates implications of endogenous quality choice when bundling information goods and analyzes welfare effects of an a la carte regulation that forces firms to unbundle products. The analysis shows that a la carte pricing decreases consumer surplus and product quality even when it reduces the average product price. An increase in advertising rates decreases product price, but it also reduces product quality and could make consumers worse off. These findings have important policy implications for media markets where regulators are considering imposition of a la carte pricing.
Volume (Year): 24 (2011)
Issue (Month): 1 ()
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