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Slides4_Information_Goods

Slides4_Information_Goods - The Information Economy The...

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The Information Economy The Nature of Information Goods 1
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Information Goods 2 Take broad view of an information good Anything that can be digitized (or has a digital component) Books, databases, movies, stock quotes etc. What is special? Reproducibility Degree of variety Customizability Search and attention
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Reproducibility 3 Information goods are… Costly to produce but cheap to reproduce. That is, high fixed costs but low (zero) marginal costs. No capacity limits Examples Cable companies cost to lay lines. Microsoft office cost to design program Amazon cost to build warehouses and buy inventories Platforms/networks not unique to the online economy Shopping malls are platforms Postal system is a network What is new is the scale: one mall for the entire world.
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Example: CD Phone Books 4 CD Phone Books are digitized versions of Yellow Pages Nynex covered NYC in 1986. Charged $10,000 per disk. Pro CD covered entire USA. Charged $hundreds in early „90s Lots of entry ensued Over 20 companies by end of 1990s. Cost of disk is $20. Product is commodity and no capacity constraints If firm A charges $200. Then B should charge $190 and steal all market. Then A should charge $180 etc. Prices go down to marginal costs.
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Two Business Models 5 There are two ways firms can make money when selling information goods Differentiate the product Sell something different from other firms Firm has some market power and can recover fixed costs Be a dominant firm Be the only firm in the industry Have the lowest costs. Have the first-mover advantage.
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Differentiation 6
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Dimensions of Differentiation 7 Delay (e.g. cinema vs. DVDs, Netflix vs. Blockbuster) User interface (e.g. Google vs. Yahoo) Customizability (e.g. Facebook‟s privacy settings) Resolution (e.g. different qualities of MP3s)
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