Pricing, Quality-Setting, and Order of Plays in an Online Information Market

Abstract

This paper considers the issue of quality differentiation in an online information market_x000D_ in which one network provider and two content providers compete over both prices and content_x000D_ qualities for the real-time network delivery of digital information products. We examine the order of plays in games of vertical product differentiation and show that sequential price_x000D_ choice of network providers reduces content differentiation among online information products,_x000D_ so that intense price competition among content providers results. However, sequential price competition reduces not only social welfare but also consumers’ surplus.