Information Economics II

McCombs School of Business

Rights Management
Production & Distribution Costs
IT Production = Reproduction (perfect copy) Digital distribution (free samples)

Complimentary & Complementary Products

McAfee, Wall Street Journal

Licenses
Site license; use license
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LockLock-In
Switching Costs Look Ahead and Reason Back Total switching cost = customer cost + supplier cost Small costs can create lock-in lockCustomer switching cost = potential extra profit
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LockLock-In Cycle
Brand selection Sampling Entrenchment LockLock-in

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Managing Lock-In LockBuyers strategy is mirror of sellers Buyers bargain before lock-in lockBuyers beware of quasi-rents quasiLoyalty programs

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Positive Feedback
Force behind network externalities. May lead to a market tipping. Evolution (migration path) of market Revolution (compelling performance) in Market

McCombs School of Business

Strategy in Network Markets

Standards are key. Compatibility creates customer benefits Alliances are key for both producers and users Open vs. Closed standards.

McCombs School of Business

Generic Strategies in Network Markets

STANDARDS
Proprietary Compatibile Open

Controlled Migration

Open Migration

TECHNOLOGY
Incompatible

Firm Discontinuity

Market Discontinuity

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Generic Strategy Examples

   

Controlled Migration: Microsoft, Intel Firm Discontinuity: Iomega, Nitendo Open Migration: modems, FAX, LINUX Market Discontinuity: Cassette Tape, CDs, 31/2 disk

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Types of Standards Wars

Rival Technology
Compatible Compatibile Incompatible

Rival Evolutions

Evolution vs Revolution

Your Technology
Incompatible

Revolution vs Evolution

Rival Revolutions

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