Forward vs. Spot Buying of Information Goods on Web: Analyzing the Consumer Decision Process

Several information goods, such as movie distribution rights or newspapers, are sold either at spot prices, or through forward subscription buying. Our paper considers a firm that offers an information good through spot buying, or through forward buying at a reduced price, or a combination of the two. We propose a consumer decision-making model that captures the market reaction to such an offering and provide interesting insights into the key elements of the consumer behavior. We show how firms selling information goods can increase their revenues by using a mixed offering strategy using both spot and forward offerings. This strategy may provide an effective price discrimination setting when there are potentially heterogeneous groups of customers in terms of their reservation prices. We also formulate the firm’s problem when it is either a price taker or a price setter.