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THE CHALLENGE OF REVENUE SHARING WITH BUNDLED PRICING: AN APPLICATION TO MUSIC
Author(s) -
SHILLER BENJAMIN,
WALDFOGEL JOEL
Publication year - 2013
Publication title -
economic inquiry
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.823
H-Index - 72
eISSN - 1465-7295
pISSN - 0095-2583
DOI - 10.1111/j.1465-7295.2011.00442.x
Subject(s) - shapley value , revenue , bundle , microeconomics , economics , valuation (finance) , revenue sharing , incentive , value (mathematics) , computer science , game theory , finance , materials science , machine learning , composite material
Although bundling can substantially increase profits relative to standalone pricing, particularly for zero‐marginal‐cost information products, it has one major problem: bundling produces revenue that is not readily attributable to particular pieces of intellectual property, creating a revenue division problem. We evaluate several possible solutions using unique song valuation survey data. We find the Shapley value, a well‐motivated theoretical solution, is universally incentive compatible (all bundle elements fare better inside the bundle than under standalone pricing), but revenue‐sharing schemes feasible with readily available consumption data are not. Among feasible schemes, Ginsburgh and Zang's modified Shapley value performs best . ( JEL C71, D79, L14)