Information Rules

Information Rules

I. Chapter 1

In this book Carl Shapiro and Hal R. Varian provide an overview of the
competitive playing field of the network economy, and highlight the key economic
rules that govern it. They assert that one does not need a New Economics to
understand the New Economy: the basic economic principles needed to develop
business strategy remain the same. To understand the economics of information
technology one must look at economic issues involving both information and
technology. On the information side, Shapiro and Varian discuss: the cost of
producing information, how to manage intellectual property, information as an
experience good, and the economics of attention. On the technology side, they
introduce: systems competition, lock-in and switching costs, positive feedback,
network externalities, and standards. The chapter ends with a brief overview of
the policy issues concerning the Network Economy.

II. Chapter 2

To begin, it is asserted that information is costly to produce but cheap to
reproduce. The economic rule that parallels this theme states that while fixed
costs of production are large, variable costs of reproduction are small. This
chapter focuses on the special cost structure of information, and outlines
effective ways to sell an information good to identifiable markets. It discusses
how to develop a basic strategy based on what industry one operates in, and
illustrates how the unique characteristics of information markets offer new
opportunities to implement time-tested principles of competitive strategy.
Shapiro and Varian also examine strategies for customizing information by
personalizing your product, and by various means of personalized pricing.

III. Chapter 3

This next chapter examines ways to version information goods in order to make
them appeal to various market segments that will pay different prices for the
different versions. Strategies for versioning are illustrated with examples and
include: delay, user interface, convenience, speed of operation, flexibility of
use, and support. Shapiro and Varian also explore issues such as: how to avoid
common pitfalls in versioning, how to determine the number of versions to offer,
and the value to be gained from product bundling.

IV. Chapter 4

Thirdly, this book explores whether copyright law is hopelessly outdated.
Shapiro and Varian say no, and within this chapter demonstrate why many of its
principles are still valid. What has changed, they say, is that the Internet,
and information technology in general, offer new opportunities and challenges in
applying these principles. Shapiro and Varian review the history of intellectual
property and describe the lessons it has for rights management on the Internet.
They discuss the tension between giving away one’s information to let people
know what one has to offer and charging them for it to recover one’s costs,
and outline strategies managers can use in making this choice.

V. Chapter 5

Then the issue of the lock-in is considered. When the costs of switching from
one brand or technology to another are substantial, users face lock-in. Shapiro
and Varian argue that the friction free economy is a fiction, and that in the
information age, users will be facing more instances of lock-in. Understanding
the costs of switching technologies or brands will be critical to success in
today’s economy. This chapter describes the common patterns that give rise to
switching costs in an attempt to help companies recognize and measure lock-in.
Using company examples, the chapter explains the different kinds of lock-in,
outlines strategies to incorporate proprietary features into a product, and
describes ways to coordinate one’s strategy with that of his or her partners.

VI. Chapter 6

Moreover, this chapter describes how to exploit lock-in when one is offering
an information system, and how to avoid it or at least anticipate it when one is
the buyer. The first part of this chapter is aimed at buyers of information
technology, which includes virtually everyone in today’s economy. To help
prevent mistakes in dealing with lock-in, Shapiro and Varian provide a catalog
of strategies to minimize lock-in and avoid monopoly exploitation. In addition,
Shapiro and Varian show how individuals can make their own switching costs work
in their favor if they get the timing right. The second part of the chapter
outlines competitive strategies for companies that sell their products and
services in markets where customers face significant switching costs, and shows
how these strategies can be put into practice.

VII. Chapter 7

This next chapter goes on to highlight network externalities as a fundamental
economic characteristic of real and virtual networks, which occur when the value
of a product or service to one user depends on how many other users there are.
The pattern such technologies follow results from positive feedback. As the
installed base of users grows, more and more users find the product useful to