Screening in digital monopolies
Abstract
A defining feature of digital goods is that replication and degradation are costless: once a high-quality good is produced, low-quality versions can be created and distributed at no additional cost. This paper studies quality-based screening in markets for digital goods. Production costs depend only on the highest quality supplied, unlike in standard screening models. The monopolist allocation exhibits two interdependent inefficiencies. First, a productive inefficiency: the monopolist underinvests in the highest quality relative to the efficiency benchmark. Second, due to a distributional inefficiency, certain buyers receive degraded versions of the produced good. Competition exacerbates productive inefficiency, but improves distributional efficiency.
Cite
@article{arxiv.2602.13014,
title = {Screening in digital monopolies},
author = {Pietro Dall'Ara and Elia Sartori},
journal= {arXiv preprint arXiv:2602.13014},
year = {2026}
}