Scribd Logo
Upload

Welcome to Scribd!

  • 46 views

    The Information Economy

    Uploaded by

    huy
    The document discusses key aspects of the information economy including: 1) Business to business use of the internet has grown substantially since 1997, reaching over £1 trillion by 2003. 2) E-products have huge fixed costs to produce but tiny marginal costs to distribute, leading to vast economies of scale. 3) Consumers face experience products, information overload, switching costs, and network externalities when using information. 4) The supply side of information tends toward monopoly suppliers or niche market monopolies due to large economies of scale.

    Copyright:

    © All Rights Reserved
    Download as PPT, PDF, TXT or read online from Scribd

    The Information Economy

    Uploaded by

    huy
    46 views13 pages
    The document discusses key aspects of the information economy including: 1) Business to business use of the internet has grown substantially since 1997, reaching over £1 trillion by 2003. 2) E-products have huge fixed costs to produce but tiny marginal costs to distribute, leading to vast economies of scale. 3) Consumers face experience products, information overload, switching costs, and network externalities when using information. 4) The supply side of information tends toward monopoly suppliers or niche market monopolies due to large economies of scale.

    Original Description:

    Economic chapter 11

    Original Title

    Ch11

    Copyright

    © © All Rights Reserved

    Available Formats

    PPT, PDF, TXT or read online from Scribd

    Did you find this document useful?

    Is this content inappropriate?

    The document discusses key aspects of the information economy including: 1) Business to business use of the internet has grown substantially since 1997, reaching over £1 trillion by 2003. 2) E-products have huge fixed costs to produce but tiny marginal costs to distribute, leading to vast economies of scale. 3) Consumers face experience products, information overload, switching costs, and network externalities when using information. 4) The supply side of information tends toward monopoly suppliers or niche market monopolies due to large economies of scale.

    Copyright:

    © All Rights Reserved
    Download as PPT, PDF, TXT or read online from Scribd
    Download as ppt, pdf, or txt
    46 views13 pages

    The Information Economy

    Uploaded by

    huy
    The document discusses key aspects of the information economy including: 1) Business to business use of the internet has grown substantially since 1997, reaching over £1 trillion by 2003. 2) E-products have huge fixed costs to produce but tiny marginal costs to distribute, leading to vast economies of scale. 3) Consumers face experience products, information overload, switching costs, and network externalities when using information. 4) The supply side of information tends toward monopoly suppliers or niche market monopolies due to large economies of scale.

    Copyright:

    © All Rights Reserved
    Download as PPT, PDF, TXT or read online from Scribd
    Download as ppt, pdf, or txt
    You are on page 1of 13

    Chapter 11

    The information economy

    David Begg, Stanley Fischer and Rudiger Dornbusch, Economics,


    6th Edition, McGraw-Hill, 2000
    Power Point presentation by Peter Smith
    11.2
    Use of the internet
    Business to business use of the internet

    1200
    1000
    800
    bn. 600
    400
    200
    0
    1997 1999 2001 2003

    11.3
    e-products
    An e-product:
    can be digitally encoded then transmitted
    rapidly, accurately and cheaply
    e.g. music, films, books, sport
    Fixed costs of producing e-products are
    huge
    but marginal costs of distribution are
    tiny
    implying vast economies of scale

    11.4
    Consuming information
    Four key features of e-products:

    experience
    overload
    switching costs
    network externalities

    11.5
    Experience products
    An experience good or service is one
    that must be sampled before the user
    knows its value
    information is nearly always new
    marketing needs careful attention
    freesamples
    previews
    establishing reputation

    11.6
    Information overload
    arises when the volume of
    available information is large
    but the cost of processing it is
    high

    screening devices become crucial

    11.7
    Switching costs
    arise when existing costs are sunk

    so changing supplier incurs additional


    costs

    smart suppliers devise strategies for


    locking in their customers
    e.g. air miles, supermarket reward cards

    11.8
    Network externalities
    Suppose D1 represents the
    demand curve for a product
    D exhibiting network externalities
    With price at P1, demand is
    P1 limited.
    If price is reduced to P2, more
    people find the network attractive
    so not only is there a move along
    P2 D the demand curve, but there is
    D1 D2 a shift in demand.
    Long-run demand is more
    Q1 Q2 Quantity
    elastic (DD).
    11.9
    Information: the supply side
    Given substantial economies of
    scale, we expect monopoly suppliers
    of information products:
    Dominant firm with competitive
    fringe
    e.g. Microsoft
    Niche market monopolies

    11.10
    Pricing information products
    Strategies for pricing information products:
    two-part tariff
    an annual charge to cover fixed costs, and a small
    price per unit related to marginal costs
    versioning
    the deliberate creation of different qualities to facilitate
    price discrimination
    bundling
    the joint supply of more than one product to reduce
    the need for price discrimination

    11.11
    Competition vs. collaboration

    A strategic alliance is a blend of


    co-operation and competition, in
    which a group of suppliers provide
    a range of products that partly
    complement one another
    e.g. Microsoft and Intel
    airline alliances: One World, Star

    11.12
    Understanding the e-economy

    1 The information revolution is


    changing our lives
    but few of its activities or market
    tactics are unprecedented
    2 The revolution in technology has
    not required a corresponding
    revolution in economic theory

    11.13

    You might also like