Because information is an experience good, we usually know if we like or value the information only after we have consumed it. This makes information particularly tricky to value and price. Additionally, cognitive biases influence whether people view information as useful, truthful, or valuable, and the value of information also depends on the context of use. The value of many information services depends on how essential they are in the situation, and how much additional value creation they enable. Therefore the pricing of digital information is often focused on estimating the buyers willingness to pay.

This second chapter on business strategy examines marketing mix decisions. In particular, it focuses on more complex aspects of pricing not covered in the context of Chapter 9 on market structure and pricing. This starts with a discussion of price discrimination, and its various degrees and types. It then moves on to examine multi-product pricing, transfer pricing and dynamic aspects of pricing over the product life cycle (PLC). A detailed discussion of psychological pricing is included, and this covers behavioural aspects not normally considered within the scope of managerial economics, but highly prominent in real-life applications. Advertising decisions are also discussed in the context of the marketing mix, examining the different strategy variables in terms of content and choice of media. Recent trends in strategy related to digital and social media are discussed. There is also a discussion on the controversial topic of the effects of advertising on welfare. Finally, there is an advanced section at the end of the chapter related to optimising the marketing mix, which is mathematical in nature and involves some counterintuitive conclusions.

The average price is essentially set to ensure a fair rate of return to the regulated firm, but it is also the weighted average of the various prices faced by the various types of users. Which specific prices and which specific weight the average price reflects depends on the forms of price discrimination and price differentiation adopted by the firm. Full price discrimination is unrealistic under current consumption measurement technologies and political constraints. Most firms providing public services rely on second- and third-degree price discrimination or some combination of the two. From a regulated firm’s perspective, price discrimination is an effective way of maximizing its share of the surplus produced by its activities. From a social welfare perspective, price discrimination can have both positive and negative effects as it can improve or worsen both efficiency and equity: the net effect depends on the specific market analysed and the specific form of price discrimination adopted by the firm. Rapid improvements in the technologies available to measure consumption such as smart meters imply that firms can implement increasingly precise forms of price discrimination.

Pricing in the arts is peculiar and opaque. Pricing for works of art is very different from pricing for museum tickets and other interchangeable goods. We consider price elasticity of demand, meaning customer sensitivity to a change in price, especially considering a ticket-pricing change at the Indianapolis Museum of Art. We consider price discrimination, the strategy of charging different prices to different groups of people. We consider other variations on pricing structure including bundling, two-part tariffs, and versioning. For pricing works of art, the method of pricing is, following from Velthuis’s work, largely sociological and best modeled as a set of scripts.

An online seller or platform is technically able to offer every consumer a different price for the same product, based on information it has about the customers. Such online price discrimination exacerbates concerns regarding the fairness and morality of price discrimination, and the possible need for regulation. In this chapter, we discuss the underlying basis of price discrimination in economic theory, and its popular perception. Our surveys show that consumers are critical and suspicious of online price discrimination. A majority consider it unacceptable and unfair, and are in favour of a ban. When stores apply online price discrimination, most consumers think they should be informed about it. We argue that the General Data Protection Regulation (GDPR) applies to the most controversial forms of online price discrimination, and not only requires companies to disclose their use of price discrimination, but also requires companies to ask customers for their prior consent. Industry practice, however, does not show any adoption of these two principles.

This chapter reviews the major segments of performing arts. These include commercial theater productions, orchestras, dance, and opera, The coverage extends to art markets and museums and to financing and economic aspects.

This chapter provides the economic framework and context in which entertainment and media businesses operate. Covers hours of work, growth rates, population effects, productivity, price effects, industry structures, valuation variables, and basic economic concepts.

This chapter introduces the three degrees of price discrimination as well as a discussion of the attendant arbitrage possibilities. The focus of the chapter is on second-degree price discrimination, which is illustrated with versioning and bundling. There is also an extensive discussion of two-part tariffs with application to the pricing of a system consisting of a consumable and a durable.