Optimal Bundling Strategy for Digital Information Goods: Network Delivery of Articles and Subscriptions

The digitization of information goods necessitates a rethinking of their production and distribution economics. An N-good bundling model with multi-dimensional consumer preferences is developed to study the key factors that determine the optimal bundling strategy. Using analytical and empirical methods, mixed bundling is established as the dominant (i.e. profit maximizing) strategy. Pure unbundling is also shown to outperform pure bundling, even in the presence of some degree of economies of scale, if consumers positively value only a subset of the bundle components, which is the predominant case in the academic journal context. These results provide strong incentives for academic journal publishers to engage in mixed bundling, i.e. offer both individual articles and journal subscriptions, when selling and delivering over the Internet.