[Study] Economics of information technology

The resulting investment boom led to a dramatic run-up of stock prices for information technology companies:

• telecommunications deregulation in 1996

• the “year 2K” problem in 1998-99

• the “dot com” boom in 1999-2000.
• Combinatorial innovation: set of technologies, comes along that offers a rich set of components that can be combined and recombined to create new products
• Internet revolution took only a few years: The components of the Internet revolution were not physical devices as all. Instead they were “just bits.” 

The “New Economy”
As with technology itself, the innovation comes not in the basic building blocks, the components
of economic analysis, but rather the ways in which they are combined.

Differentiation of products and prices

• highly personalized products can be sold at a highly personalized price
• everyone faces the same menu of prices for a set of related products
• different prices to different groups

price discrimination that is of considerable interest in hightech markets is price discrimination based on purchase history

Switching costs and lock-in
Changing software environments at the organizational level is also very costly => not the trend anymore => Cloud computing

Supply-side economies of scale

• Competition to acquire monopoly. In many cases the competition to acquire a monopoly will force lower prices for consumers (not the trend anymore)
• Reduction in fixed costs (not the trend anymore)
• Competition with your prior production.  v
• Pressure from complementors

Competing for monopoly (not the trend -> disrupted innovation)

Bibliography:

Varian, H. R. (2001). Economics of information technology. University of California, Berkeley.