Optimal versioning and pricing of information products with considering or not common valuation of customers

Since information products are often offered to market in multiple versions to make vertical differentiation, the optimal versioning strategy has become a hot topic in the research community. This paper focuses on the numerical investigation of the properties of optimal versioning under linear utility functions by considering or not the common valuation (or reservation price) of all customers. The bilevel programming model is built for the optimal versioning task of an information product with the monopolist as the leader and all customers as followers, and it is able to formulate the optimal versioning strategy by considering both quality levels and prices of an information product. The utility functions are defined by considering or not the basic willingness to pay shared by all customers with some-degree of homogeneity, and then the optimality of the two-version scheme is evaluated. It is found that the two-version scheme consisting of both the highest-quality version and the lower-quality version is superior to the one-version scheme with only the highest-quality version when there is nonzero common valuation of customers. But the introduction of the interim-quality version will cannibalize market shares of both the highest-quality version and the lowest-quality version in the three-version scheme according to numerical computation results based on the bilevel programming model. The three-version scheme cannot bring more profit to the monopolist than the two-version scheme, or there does not exist an optimal three-version scheme for the versioning strategy with linear utility functions. (C) 2012 Elsevier Ltd. All rights reserved.