Screening in Digital Monopolies

Pietro Dall’Ara () and Elia Sartori ()
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Pietro Dall’Ara: University of Naples Federico II and CSEF, https://csef.it/people/pietro-dallara/
Elia Sartori: University of Naples Federico II and CSEF, https://csef.it/people/elia-sartori/

CSEF Working Papers from Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy

Abstract: A defining feature of digital goods is that replication and degradation are costless: once a high-quality good is produced, low-quality versions can be created and distributed at no additional cost. This paper studies quality-based screening in markets for digital goods, exploring how the insights of the canonical model of Mussa and Rosen (1978) change when production costs are nonseparable and, instead, depend only on the highest quality developed. The monopolist allocation exhibits two interdependent inefficiencies. First, a productive inefficiency arises: the monopolist under-invests in the highest quality relative to the efficiency benchmark. Second, due to a distributional inefficiency, certain buyers receive degraded versions of the produced good. Competition exacerbates productive inefficiency, but improves distributional efficiency relative to monopoly.

Keywords: Screening; Monopoly; Digital Goods; Mechanism Design. (search for similar items in EconPapers)
JEL-codes: D42 D82 L12 (search for similar items in EconPapers)
Date: 2024-06-20, Revised 2026-02-13
New Economics Papers: this item is included in nep-com, nep-gth, nep-ind, nep-inv, nep-mic and nep-pay
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Persistent link: https://EconPapers.repec.org/RePEc:sef:csefwp:719

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