Aggregation and Disaggregation of Information Goods: Implications for Bundling, Site Licensing and Micropayment Systems

We analyze pricing strategies for digital information goods that are based on aggregation or disaggregation. Bundling, site licensing, and subscription pricing can be analyzed as strategies that aggregate consumer utility across different goods, different consumers, or different time periods, respectively. Using micropayments for rental of software “applets” or other discrete units of information, can be thought of as disaggregation. We show that reductions in marginal costs made possible by low-cost digital processing and storage of information will favor aggregation, while reductions in transaction and distribution costs made possible by ubiquitous networking tend to make disaggregation of information goods more profitable. Furthermore, offering the goods simultaneously in the aggregated package and as separate components may dominate both strategies of pure aggregation and pure disaggregation. Our model demonstrates how the increasing availability of information goods over the Internet will lead to increased use of both disaggregation-based pricing strategies taking advantage of micropayment technologies, and aggregation strategies where information goods will be offered in bundles, site licenses, and subscriptions. Copyright © 1997 by Yannis Bakos and Erik Brynjolfsson * Graduate School of Management, University of California, Irvine; email: [email protected]; web: http://www.gsm.uci.edu/~bakos ** Massachusetts Institute of Technology and Stanford University; email: [email protected]; web: http://ccs.mit.edu/erik.html.