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Economics of Information

Economics of Information. The Value of Information. Information. Anything that can be digitized Technology : Infrastructure for the storage, retrieval, filtering, manipulation, viewing, transmitting, and receiving of information Unique Cost Characteristics Unique Demand Characteristics.

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Economics of Information

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  1. Economics of Information The Value of Information

  2. Information • Anything that can be digitized • Technology: Infrastructure for the storage, retrieval, filtering, manipulation, viewing, transmitting, and receiving of information • Unique Cost Characteristics • Unique Demand Characteristics Economics of Information - Mike Shor

  3. How Much Information(Annual Worldwide Production) Film: 40 teraB Music: 50 teraB Paper: 200 teraB X-Ray: 20 petaB Photo: 250 petaB Camcorder: 300 petaB Disk Drives: 600 petaB Economics of Information - Mike Shor

  4. Information Cost • Costly to produce • High fixed, sunk cost • Effectively free to reproduce • Low, constant marginal costs • No significant capacity constraints • Traditional Economic Analysis Fails ? Economics of Information - Mike Shor

  5. Marginal Costs: Storage • 1988 $10.00 / MB • 1998 $00.10 / MB • 2000 $00.02 / MB • 2001 $00.005 / MB IBM Deskstar 75GXP 60GB $319.32 ½¢ / MB Library of Congress (200 IBM 75GXP) 12 terabytes = $60,000 bandwidth cost: $40 (NY to CA) Economics of Information - Mike Shor

  6. Profiting from Information • Information can be resold Ad. Infinitum. • Personalized Pricing (Petur) • Versioning (Mike) • Marginal costs of production are 0 • Hence, price tends to 0 • Lower costs of production imply lower costs of reproduction • Rights Management (Wonsoo, Patrick) • Fixed costs decrease for each new firm • Learning • Legal protection Economics of Information - Mike Shor

  7. Unique Demand Characteristics • Experience good • Browsing • Always new • Reputation and brand identity • Overload • “Economics of attention” Economics of Information - Mike Shor

  8. Information Overload • More information produced in the last 30 years than the previous 5000! • 1000 new books are published every day! • Over 4000 new web sites every day • The amount of printed information doubles every eight years! • Over one billion pages on the Web • Only about 20% are indexed Economics of Information - Mike Shor

  9. Relevance 1 billion web pages x 20K text / page = 20 terabytes = 10,000 gigabytes = 20 million books x 1/200 (0.5%) useful = 100,000 books = 1 Bookstore Economics of Information - Mike Shor

  10. Adding Value to Information • Accuracy & Quality • Timeliness • Accessibility and Search • Relevance • Categorize • Adding Context to Information • Analysis, Comparison • Synthesis • Calculate, Condense Economics of Information - Mike Shor

  11. Profiting from Technology • Unstable Industry Model: • Traditional price competition • Always incentive to undercut prices • Network economies preclude this • Stable: Monopoly / Dominant Firm • Achieved through Lock-In • Achieved through Cost Leadership • Stable: Differentiated Market • Achieved through added value Economics of Information - Mike Shor

  12. Summary • Pure information cannot be priced • Information • Profits from added value • Technology • Profits from means to analyze and exchange • Directions • How to price and manage information Economics of Information - Mike Shor

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