Introduction to Information

Economy
Chapter-2

1
 Interconnection battles
• Technology changes. Economic laws do not.
• Netscape – classic problem of interconnection

2
 Information goods
• information - anything that can be digitized--
encoded as a stream of bits--is information
– Some information has entertainment value, and some
has business value, but regardless of the particular
source of value, people are willing to pay for
information.
– information is costly to create and assemble
• information goods - books, databases, magazines,
movies, music, stock quotes, and Web pages

3
 Cost of Producing Information
• Information is costly to produce but cheap to
reproduce
• production of an information good involves
high fixed costs but low marginal costs
• must price your information goods according
to consumer value, not according to your
production cost.

4
• people have widely different values for a
particular piece of information, value-based
pricing leads naturally to differential pricing
– Eg: hardback book and paperback

5
 Managing Intellectual Property
• If copies crowd out legitimate sales, the
producers of information may not be able to
recover their production costs
• intellectual property - patents, copyright, and
trademarks
• goal should be to choose the terms and
conditions that maximize the value of your
intellectual property, not the terms and
conditions that maximize the protection
6
Information as an economic good
• Experience good.
– You must experience an information good before
you know what it is.
• Returns to scale.
– Information typically has a high fixed cost of
production but a low marginal cost of reproduction.
• Public goods.
– Information goods are typically non-rival and
sometimes non-excludable.

7
 Information as an "Experience Good"

• good is an experience good- if consumers must

experience it to value it
• information is an experience good - every time
it's consumed
• Strategies:
– Previewing and browsing
– Review
– Branding and reputation