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FUNDAMENTALS OF INFORMATION GOODS Digital/Information Goods (recipes, movies) - anything that can be expressed as a string of 1s and 0s (bits) - collection of symbols - expensive to produce, cheap to reproduce: high fixed costs, low marginal cost Properties of Information Goods - MC=0 - economies of scale achieved at Q=infinity, MC=AC - natural monopoly, otherwise very competitive - Experience goods - consumers cannot tell quality/ value before consuming them - difficult to sell at high prices - harder to sell, info not transparent, info asymmetry ads, trials, reviews - Public goods - non exclusive, non rival - hard to make money when selling public good, money through donations - limitations with laws, technology property - Value Volatility - make items less durable to sell more: if infinite, new software versions PRICING INFORMATION GOODS Three Degrees of Price Discrimination 1. Personalized pricing = find out what each customer is willing to pay, charge that 2. Versioning = multiple products, self-selection 3. Group pricing = student discounts CARR’s “IT DOES NOT MATTER” - studies have shown that add’l spending for IT rarely leads to better profits - there is no real competitive advantage - companies should instead meticulously manage costs and risks - WRONG: IT is contributing/driving business, facilitates data, software available to everyone, helps transportation, can’t live without it IT and ORGANIZATION/HOW IT TRANSFORMS FIRMS Decision Rights - centralized company – decisions are made at high levels, move knowledge to top - decentralized company - decisions are made at low levels, delegate decision rights to knowledge owners Incentive Design - if effort can be observed exactly, base incentive on efforts - perform better if based on output but that isn’t always best - a good system focuses on bottom line, includes factors based on output and effort, is accurate, understandable and resists gaming - IT monitors Complementarities in Design Variables - marginal value of one activity is increasing in the amount of another activity - components are correlated, systems worth more than components alone - can’t mix and match, can’t just change one dimension - ex. hardware and software
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TECHNOLOGY FUNDAMENTALS Start up process: what is computer doing while the screen is black? - First = self test: CPU goes to Read Only Memory (ROM) for instructions to check computer, ROM instructs CPU to check hardware - CPU can only get directions from memories, not hard drive - If results of self test not ok you hear continuous beeps - After self test: ROM asks CPU to search for boot sector, operating system kicks in, windows continue to load drivers for other devices - SUM UP: CPU gets from ROM, then RAM, drivers from OS load into memories Packaged software vs. SAAS - SAAS = software as a service, pay a subscription, access over the internet - +: automatic updates, fewer compatibility issues (just need web browser), no installs, small upfront costs -: online connectivity required, someone else is responsible for your data, someone
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This note was uploaded on 12/01/2010 for the course BMGT 301 taught by Professor Wang during the Spring '08 term at Maryland.

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