Confessions of an internet monopolist: demand estimation for a versioned information good

Abstract

We develop and apply a method for estimating demand system parameters for versioned information goods. Our analysis uses data collected from a web‐based field experiment in which prices and versions of an information good were exogenously varied. Using a maximum simulated likelihood (MSL) procedure, we estimate parameters characterizing distributions of utility functions over a population of potential buyers. We then construct profit‐maximizing versioning and pricing plans for the seller and assess the welfare implications of those plans. Because firms increasingly have opportunities to collect information by tracking behavior of customers, methods similar to ours could be useful in future commercial applications. Copyright © 2010 John Wiley & Sons, Ltd.