Digital Goods Reselling: Implications on Cannibalization and Price Discrimination

The resale of used products presents the challenge of cannibalization, particularly pronounced in digital goods markets where perfect substitutes are easily replicable. In this article, we assert that, rather than a threat, resale can serve as an effective pricing tool for managing heterogeneous demand. We consider a seller of digital goods/services who offers a contract to a heterogeneous group of customers at a fixed price for a specified amount of usage allowance. Rather than imposing restrictive sharing barriers, the seller allows subscribers to share their allowances with others in a secondary market. Our analysis reveals that the seller’s optimal strategy involves facilitating resale by eliminating transaction costs. The sharing contract effectively achieves the same outcome as a two-part tariff, wherein subscribers pay an entry fee along with a marginal usage rate. Both approaches generate equivalent revenue and market coverage, and result in idential demand and individual surplus for customers of the same type. Consequently, the sharing contract acts as a mechanism for price discrimination. Our finding provides a new perspective on peer-to-peer resales and also challenges the conventional belief that successful price discrimination hinges on preventing resale.

Authors

Institutions

Publication Details

Journal
Production and Operations Management
Published
2024-11-28
DOI
https://doi.org/10.1177/10591478241305333
Citations
2
Primary Topic
Taxation and Compliance Studies
Type
article
Field-Weighted Citation Impact
2.26
Controls
|||
ALL TIME
JAN
FEB
MAR
APR
MAY
JUN
JUL
AUG
SEP
OCT
article

Digital Goods Reselling: Implications on Cannibalization and Price Discrimination

Sean X. Zhou, Xiaoquan Zhang, Hongqiao Chen, Yang Li et al.
2 citations
Production and Operations Management
Taxation and Compliance Studies
2.26
article

Digital Goods Reselling: Implications on Cannibalization and Price Discrimination

Sean X. Zhou, Xiaoquan Zhang, Hongqiao Chen, Yang Li, Ying‐Ju Chen
article en
2 citations

Abstract

The resale of used products presents the challenge of cannibalization, particularly pronounced in digital goods markets where perfect substitutes are easily replicable. In this article, we assert that, rather than a threat, resale can serve as an effective pricing tool for managing heterogeneous demand. We consider a seller of digital goods/services who offers a contract to a heterogeneous group of customers at a fixed price for a specified amount of usage allowance. Rather than imposing restrictive sharing barriers, the seller allows subscribers to share their allowances with others in a secondary market. Our analysis reveals that the seller’s optimal strategy involves facilitating resale by eliminating transaction costs. The sharing contract effectively achieves the same outcome as a two-part tariff, wherein subscribers pay an entry fee along with a marginal usage rate. Both approaches generate equivalent revenue and market coverage, and result in idential demand and individual surplus for customers of the same type. Consequently, the sharing contract acts as a mechanism for price discrimination. Our finding provides a new perspective on peer-to-peer resales and also challenges the conventional belief that successful price discrimination hinges on preventing resale.

Production and Operations ManagementVol. 34(7)
Western University (CA), Chinese University of Hong Kong (HK), Hong Kong University of Science and Technology (HK), Nanjing University (CN)
Reduced inequalities
Openalex Percentile: Top 7%
Taxation and Compliance Studies
2.26
AI Navigator

Ask Laika to Summarize, Analyze, and Connect papers live on the map.

Summarize Papers & Methodologies

Extract key findings, datasets, and comparative methods across publications.

Benchmark Rankings & Visual Analytics

Rank top research institutions, authors, funders, topics, and journals by Field-Weighted Citation Impact (FWCI) and paper volume with instant charts.

Connect Distant Disciplines

Bridge topological clusters on the map to find hidden collaborative intersections.