The Mixed Blessing of Price Discrimination
Gabriel Rossman gives an excellent explanation of price discrimination in the context of cable TV bundling. He writes,
A switch to a la carte will probably result in an increase in consumer surplus per unit demanded but a drastic decrease in quantity supplied…
television may not be economically viable when priced on an a la carte basis and this could lead to a decline in volume and possibly quality of original programming.
Read the whole thing. Given that Price Discrimination Explains Everything, one cannot be too well versed in the topic.
Overall, I am not as pessimistic as Rossman. Bundling is not the only solution to pricing for information goods. Historically, artists and entertainers relied on wealthy patrons. Individual patrons could fund some projects. Clubs of patrons can fund more expensive ones. Yes, there would be free riders among the patrons within a club, but there is no perfect funding mechanism.
Note that my consumption of television and movies is probably in the bottom 1 percentile among Americans, so I may not be the best person to opine on this topic.
The problem of revenue models for stuff that can be copied and distributed for free is going to be with us for quite some time. Apple is not going to solve it. Amazon is not going to solve it. But they are not making it worse.
Thanks to Tyler Cowen for the pointer.