Lecture_32_Information_Technology - Lecture 32 Information...

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Lecture 32: Information Technology c 2008 Je/rey A. Miron Outline 1. Introduction 2. Systems Competition 3. The Problem of Complements 4. Lock-In 5. Network Externalities 6. Markets with Network Externalities 7. Market Dynamics 8. Implications of Network Externalities 9. Rights Management 10. Sharing Intellectual Property 1 Introduction One of the most radical changes in the economy in the last 15 years has been the emergence of the information economy. The Industrial Revolution transformed the way goods are produced, distrib- uted,and consumed; the Information Revolution is transforming the way information is produced, distributed, and consumed. Some people claim these new technologies require a di/erent kind of economics, based on the view that bits are di/erent than atoms. Bits can be reproduced 1
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deteriorate. Goods have none of these properties. Bits do have unusual properties, which implies some new economic analysis. It is not obvious, however, that they require a new kind of analysis. Our models are about people, not goods. We model how people make choices and interact. The key ingredients in our models are tastes and technology, and the structure of the market, and these same factors will determine how markets for information work, or not. In this lecture we investigate a few economic models relevant to information. The &rst has to do with the economics of networks; the second with switching costs; and the third with rights management for information goods. These models illustrate how the basic tools of economic analysis can help un- derstand information as well as goods. More broadly, these models illustrate the application of economic theory to interesting problems. It is useful to note that these models are simple and use minimal amounts of math. Sometimes they suggest useful insights; sometimes they seem to be formalizing the obvious. 2 Systems Competition Information technology is generally used in systems. Such systems involve sev- together. Hardware is useless without software; a DVD player is useless without DVD disks; an operating system is worthless without applications, and a web browsers is useless without web servers. All of these are examples of complements: goods where component. Providers of components therefore often worry as much about the complemen- tors for their products as they do about their competitors. A key part of Apple²s competitive strategy has involved their relations with software developers. This gives competitive strategy in information technology industries a di/erent ³avor than strategy in traditional industries. 2
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Lecture_32_Information_Technology - Lecture 32 Information...

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