A BEJTE Contributions article.

Abstract

A substantial portion of information goods is sold through upgrades. I model a monopolist offering successive generations of an information good in a dynamic model. In each period, the monopolist offers up to two prices for each generation: a full price to those who have never purchased and a version upgrade price to consumers who own a previous generation. I employ an overlapping generations model with infinite-lived firms and consumers that reflects the effect of future profits on current decisions better than previous two-period models. The model's predictions accord well with data from the PC software industry. The model explains why: 1) firms issued version upgrades with every new generation, 2) firms provided a discount to those upgrading relative to first-time buyers and 3) late adopters commonly purchased the latest version at full price even though some earlier adopters with higher valuations did not upgrade to the latest version.

Submitted: January 8, 2004 · Accepted: April 25, 2006 · Published: January 16, 2007

Recommended Citation

Viard, V. Brian (2007) "Information Goods Upgrades: Theory and Evidence," The B.E. Journal of Theoretical Economics: Vol. 7 : Iss. 1 (Contributions), Article 3.
Available at: http://www.bepress.com/bejte/vol7/iss1/art3