Screening in digital monopolies

Pietro Dall'Ara and Elia Sartori

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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. Production costs depend only on the highest quality supplied, unlike in standard screening models. The monopolist allocation exhibits two interdependent inefficiencies. First, a productive inefficiency: the monopolist underinvests 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.

Date: 2026-02, Revised 2026-03
New Economics Papers: this item is included in nep-com, nep-des, nep-ind, nep-mic and nep-reg
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