Information Economics II

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Information Economics II
2
Rights Management

• Production Distribution Costs
• IT Production Reproduction (perfect copy)
• Digital distribution (free samples)
• Complimentary Complementary Products
• McAfee, Wall Street Journal
• Licenses
• Site license use license

3
Lock-In

• Switching Costs
• Look Ahead and Reason Back
• Total switching cost customer cost supplier
  cost
• Small costs can create lock-in
• Customer switching cost potential extra profit

4
Lock-In Cycle

• Brand selection
• Sampling
• Entrenchment
• Lock-in

5
Managing Lock-In

• Buyers strategy is mirror of sellers
• Buyers bargain before lock-in
• Buyers beware of quasi-rents
• Loyalty programs

6
Positive Feedback

• Force behind network externalities.
• May lead to a market tipping.
• Evolution (migration path) of market
• Revolution (compelling performance) in Market

7
Strategy in Network Markets

• Standards are key.
• Compatibility creates customer benefits
• Alliances are key for both producers and users
• Open vs. Closed standards.

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Generic Strategies in Network Markets
STANDARDS
Proprietary
Open
Compatibile
Controlled Migration
Open Migration
TECHNOLOGY
Market Discontinuity
Firm Discontinuity
Incompatible
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Generic Strategy Examples

• Controlled Migration Microsoft, Intel
• Firm Discontinuity Iomega, Nitendo
• Open Migration modems, FAX, LINUX
• Market Discontinuity Cassette Tape, CDs, 31/2
  disk

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Types of Standards Wars
Rival Technology
Compatible
Incompatible
Compatibile
Rival Evolutions
Evolution vs Revolution
Your Technology
Rival Revolutions
Revolution vs Evolution
Incompatible