The challenge of revenue sharing with bundled pricing: An application to music

Abstract

Although bundling can substantially increase profits relative to standalone pricing, particularly for zero-marginal-cost information products, it has one major problem: bundling produces revenue that is not readily attributable to particular pieces of intellectual property, creating a revenue division problem. We evaluate several possible solutions using unique song valuation survey data. We find the Shapley value, a well-motivated theoretical solution, is universally incentive compatible (all bundle elements fare better inside the bundle than under standalone pricing), but revenue-sharing schemes feasible with readily available consumption data are not. Among feasible schemes, Ginsburgh and Zang's modified Shapley value performs best. (JEL C71, D79, L14) © 2012 Western Economic Association International.