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Screening in digital monopolies

Author

Listed:
  • Pietro Dall'Ara
  • Elia Sartori

Abstract

A defining feature of digital goods is that replication and degradation are costless: once a high-quality good is produced, low-quality versions can be created and distributed at no additional cost. This paper studies quality-based screening in markets for digital goods. Production costs depend only on the highest quality supplied, unlike in standard screening models. The monopolist allocation exhibits two interdependent inefficiencies. First, a productive inefficiency: the monopolist underinvests in the highest quality relative to the efficiency benchmark. Second, due to a distributional inefficiency, certain buyers receive degraded versions of the produced good. Competition exacerbates productive inefficiency, but improves distributional efficiency.

Suggested Citation

  • Pietro Dall'Ara & Elia Sartori, 2026. "Screening in digital monopolies," Papers 2602.13014, arXiv.org, revised Mar 2026.
    • Handle: RePEc:arx:papers:2602.13014
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    References listed on IDEAS

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