Definition of information good a collection of symbols its utility depends on the arrangement Information Goods of the symbols not on the material form that they take o Information and entertainment products Newspapers magazines journals books Graphics photographs posters Audio videos tv programs movies o Symbols tokens and concepts Tickets and reservations airlines hotels concerts Financial insutrments checks credit cards o Processes and services Tax forms telephone calls Properties of information goods o Information goods are infinitely replicable Incentive problem because they re so replicable people lose incentive to create new goods o Information goods are easy to distribute o Information goods are experience goods reputation o Uniqueness You don t know if you like them until you try them previewing and browsing reviews Greater variation in valuations o Most traditional industries markets have 3 main competitors Gives us as consumers more options Keeps prices down price competitive o Most information digital goods industries are near monopolies high up front investment fixed costs sunk costs and virtually zero marginal costs o Often time dependent perishable Ex Weather forecasts stock quotes news o Indestructibility durable Quality does not deteriorate over time Why does a durable good manufacturer limit durability of goods So you ll keep coming Implications for second hand markets back for more they make more money What can sellers of digital goods do to overcome this position of infinite durability They can charge subscription fees update different aspects of product ex New chapter in textbook o Nonrival one person s consumption doesn t diminish the amount available to another o Nonexcludable it s costly to exclude people who do not pay from consuming the goods ex o Value may accumulate over time o Transmutability changing form Mix and match recycled and reused Public goods share some qualities with information goods Lighthouse national defense TV radio broadcasts o Digital goods are much the same ex viewing online news Copyright Protection o Rights Automatic doesn t require formal filing o Works that cannot be copyrighted Works that aren t original Facts Works in public domain copyright expired Works created by US government Ideas verification costly benefits not clear o Fair Use Under first amendment use of copyrighted material is permitted without the author s consent is permitted under certain circumstances Guidelines for determining fair use Purpose and character of use Nature of the copyrighted work Effect on value of work Ex Ditto com Why don t physical goods have fair use provisions Only one person can use a physical good at a time Digital Goods simultaneous use is feasible fair use is okay as long as it doesn t cause economic loss to the owner o Digital Millennium Copyright Act o Licensing licensee Licenses contracts private agreements that provide a limited transfer of rights to the Allows for a more precise definition of exactly what rights the customer gets But doesn t grant customers the default rights they get under IP law when they purchase IT and Strategy Sustainable Competitive Advantage Definition financial performance that consistently outperforms industry averages How to measure competitive advantage o Accounting profits o Stock price Understanding competitive advantage tasks in a different way How IT enables competitive advantage o Operational Effectiveness performing the same tasks better than your rivals o Strategic Positions performing different tasks than your rivals or performing the same o Price Discrimination charge as close as possible to willingness to pay of each consumer Third degree price each group of customers differently based on observed characteristics ex Student discounts Second degree offer different price product bundles that are attractive to the right customers but not others ex Discount based on quantity Some industries more profitable than others oil and pharmaceutical versus catering and restaurant First degree figure out each person s willingness to pay and chare them that price o Depend son relationship with environment Over time profitability is determined by industry structure The Five Forces Model determines the relative attractiveness of an industry Industry structure is shaped by Porter s Five Forces o 1 Intensity of intra industry competition rivalry among existing competitors o 2 Barriers to entry threat of new entrants o 3 Bargaining power of suppliers o 4 Bargaining power of buyers and channels o 5 Threat of substitute products and services Buyer Power high when buyers have many choices of whom to buy from and low when their choices are few o Determinants volume concentration buyer information price sensitivity brand loyalty o IT reduces search costs increasing buyer info o How IT can be used to decrease buyer power loyalty programs reward customers based on the amount of business they do with a particular organization Supplier Power high when buyers have few choices of whom to buy from and low when their choices are many o Determinants substitute for the supply volume concentration impact of inputs on cost or differentiation o How IT can be used to decrease supplier power Use inter organizational system to lock in suppliers harder now Business to Business B2B marketplace an internet based service which brings together many buyers and sellers o Be aware of the down side Hurting long term relationship Good for commodity like office supply Not suitable for more complex products bidding for a new product design Threat of substitute products or services high when there are many alternatives to a product or service and low when there are few alternatives from which to choose o Determinants relative price performance switching costs buyer propensity to substitute o Example change doctors vs change barbers video conference vs travel wikipedia vs your Rivalry among existing competitors high when competition is fierce in a market and low when professor kindle vs paper competition is more complacent o Although competition is always more intense in some industries than in others the overall trend is toward increased competition in just about every industry Widens geographic market increasing the number of competitors Fierce price competition Product information more transparent Highly competitive industries wireless communication AT T and Verizon Lower competition soup plastic products Threat of new entrants high when it is
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