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Software Upgrades under Monopoly

  • Jiri Strelicky
  • Kresimir Zigic

We study price discrimination in a monopolistic software market. The monopolist charges different prices for the upgrade version and for the full version. Consumers are heterogeneous in taste for infinitely durable software and there is no resale. We show that price discrimination leads to a higher software quality but raises both absolute price and price per quality. This price discrimination does not increase sales and it decreases the total number of consumers compared to no discrimination. Finally, such discrimination decreases consumers' surplus but increases the developer's profit and social welfare that attains the social optimum in the limit.

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Paper provided by The Center for Economic Research and Graduate Education - Economics Institute, Prague in its series CERGE-EI Working Papers with number wp478.

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Date of creation: Jan 2013
Date of revision:
Handle: RePEc:cer:papers:wp478
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  1. Arthur Fishman & Rafael Rob, 2000. "Product Innovation by a Durable-Good Monpoly," RAND Journal of Economics, The RAND Corporation, vol. 31(2), pages 237-252, Summer.
  2. Inderst, Roman, 2003. "Durable Goods with Quality Differentiation," CEPR Discussion Papers 4047, C.E.P.R. Discussion Papers.
  3. Stokey, Nancy L, 1979. "Intertemporal Price Discrimination," The Quarterly Journal of Economics, MIT Press, vol. 93(3), pages 355-71, August.
  4. Qiu_Hong Wang & Kai-Lung Hui, 2005. "Technology Timing and Pricing In the Presence of an Installed Base," Industrial Organization 0512013, EconWPA.
  5. Jae Nahm, 2004. "Durable-Goods Monopoly with Endogenous Innovation," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 13(2), pages 303-319, 06.
  6. Banerjee, Dyuti S., 2003. "Software piracy: a strategic analysis and policy instruments," International Journal of Industrial Organization, Elsevier, vol. 21(1), pages 97-127, January.
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