vacuum's Full Review: Carl Shapiro and Hal R. Varian - Information Rules...
Hal Varian and Carl Shapiro have a new book out, "Information Rules: A Strategic Guide to the Network Economy". Hal is dean of the School of Information Management Studies at Berkeley and was my undergraduate advisor at Michigan. The book is as close as I can imagine to the textbook that I wish I had studied from while getting my
econ degree, because all of the classical supply and demand stuff taught in Econ 101 just didn't make any sense when I was trying to fit it to any of the Internet experiences I had then.
The book is full of very sensible explanations of how information goods behave - goods that are expensive to produce, but cheap to reproduce; goods that get more valuable the more people use them. There is no "new
economy", and the examples are drawn from all manner of industrial history in telecommunications, typewriters, airlines, in addition to the modern stories of what is happening on the Internet.
The best insight I got from reading it was figuring out how prices work for goods that are essentially free to reproduce. The authors argue that the main costs to watch for in information goods are the costs of switching between products once you've make a commitment to one of them. If you can understand how to make products that are easy to get into but hard to get out of, you can get your loyal customer base "locked in". This is possible to do even if you adhere strictly to standards, but of course it's easier to manage if you can sell services that are uniquely characterized to solve the customer's specific problem. The easier it is for your customer to bail, the less they're worth to you, and the less you can charge for your services.
(I run a mailing list called Vacuum. If you want to bail from Vacuum, see http://egroups.com/list/vacuum-egroup and unsubscribe yourself. If I want to bail from eGroups, I have to do a lot more work re-establishing the list somewhere else. So if they decide to start charging, I'll think hard about paying. It's a pretty good service.)
The examples are clear and up to date, the prose is fresh and readable, and the conclusions drawn make considerable sense. What's more, this book leads the reader to decide for their own information products how to divide up markets to maximize value, make the right number of different versions of their products, and take advantage of network effects. If you went through classical economics (like me) and expected it to help you in providing insights into information markets, well, this book should set you straight.
The textbook, Information Rules : A Strategic Guide to the Network Economy, by Carl Shapiro and Hal R. Varian, available in Hardback. Published by: ...More at Textbooks.com
As one of the first books to distill the economics of information and networks into practical business strategies, this is a guide to the winning move...More at Buy.com Marketplaces
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