12 03 2012 20 18 00 Look over fresh direct and walmart Information Goods What is an information good Provide examples A collection of symbols Utility depends on the arrangement of the symbols not on the material form that they take thus they are easily digitalized Value is derived from information more than media physical form Technology is the digitization and proliferation of information goods Books Music Movies financial reports patent What are the key characteristics of Information Goods Experience goods movies books Unique valuations vary aspects of monopoly Variable valuations With digitization Information Goods take on new characteristics Infinitely replicable Easy to distribute High fixed costs low marginal costs Intellectual Property Protection Intellectual property is any innovation commercial or artistic or any unique name symbol logo or design used commercially creations of Ex scientific discoveries engineering designs pharmaceutical formulas corporate names slogans logos novels poems songs drawings the mind photos Rights of Possession Allows individuals to use the property o Usually a bundle of rights build cultivate leave it idle Prevents others from using the property Rights of transfer Right to transfer the rights of possession Why Property Rights Incentives to work invest the optimal effort Incentive to maintain and improve things prevent tragedy of the Incentive to transfer things leads to beneficial trade makes production Avoidance of disputes prevents socially wasteful unproductive activities The characteristics of IP Info Goods make them similar to public goods Nonrival one person s consumption doesn t diminish the amount available commons more efficient to another Nonexcludable it is costly to exclude people who do not pay from consuming the good ex lighthouse national defense tv radio broadcasts This leads to need for special treatment different from physical property rights protection Physical goods are rivaled and excludable Incentive of IP protection to create incentives that maximize the social surplus from IP Some specific issues Trying to ensure that creators of IP get sufficient value from their creation Trying to facilitate future creation of IP Striking the right balance between creation and distribution Copyright grants rights for a lifetime 75 95 years author 95 yrs company Automatic does not require formal filing Reproduction transcribe imitate in fixed form Distribution of copies sale rent lease or lend Public performance or display Preparation of derivative works Fair use use of copyrighted material is permitted without the author s consent under some circumstances Purpose and character of use Nature of the copyrighted work Amount and substantiality of the portion of work used Effect on value of work Ex image search Fair use is unique to IP because physical goods are rivaled and excludable and digital goods simultaneous use is feasible and transaction costs are usually high Limitations Facts ideas works by the US government works in the public domain copyright expired works not fixed on a sufficiently permanent medium Patent The right to exclude all others from making selling or using invention for up to 20 years Most comprehensive of all IP protection Can prevent an independent discoverer of the same matter from making Must be approved requires the invention to be new useful non obvious selling or using Exclusive rights Trademarks Time limited because new innovation builds on old Need to balance protection with access o Source indicator Must be registered Infinitely renewable Trade Secret Not registered Theoretically unlimited protection Drivers of New IP Protection Challenges Digital information Reproduction is easy fast costless Line between copying and access is blurred The Internet and WWW Distribution of IP is costless and instantaneous Some natural barriers to IP infringement are disappearing Widespread computer use The technology for manipulating and accessing digital information is widespread but legal awareness is not Alternatives to relying on IP regulation Technical solutions DRM Digital Rights Management Sony example effort to protect music CDs Subsidize creation of IP France s 3 strikes law ISP monitors activity Illegal file sharing can result in loss of internet connection for 1 yr Alternate Business Models Make the product cheaper and easier to buy Look for alternate revenue streams advertising Offer extreme customization Reconceptualize the basic product as a service Give away the product Revenues from auxiliary service Sell upgrades Revenues from complementary modules To define a good business model you need to understand your strategy Strategy way in the industry quickly Goal Create sustainable competitive advantage by doing things in a unique Operational effectiveness performing the same tasks better than rivals Fast follower problem rivals follow pioneers with comparable or superior products No competitive advantage because technology can be matched so Resource based view of competitive advantage valuable resource rare resource imperfectly imitable nonsubsitutable Key sources of competitive advantage Imitation resistant value chain selection of products or services Brand built through customer experience Viral marketing Differentiation vertical measurable by quality of products Horizontal wider it Economies of scale Sources of switching costs learning costs information and data reenter data convert files system compatibility financial commitment contractual commitments search costs loyalty programs mileage points Network Effects product or service becomes more useful as more people use Distribution channels path through which products or services get to customers Critical to firm success Cost leadership lowering cost of production Value Chain know each component of the value chain Primary inbound operations outbound marketing and sales service Secondary firm infrastructure HR development technology research development procurement Imitation resistant value chain competitors cant compete with value chain How IT adds value The Virtual Value Chain Gathers information Organizes information Selects information Synthesizes information Distributes information All adds value to the value chain increases productivity which enables an imitation resistant value chain strengthening a firms brand establishing higher switching costs and giving them more of a competitive advantage Visibility ability to see physical operations more
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