Information, Technology, and Innovation: Resources for Growth in a Connected World

CHAPTER 4

Information Economics

In the late 1990s, there was talk of a new economy in which old rules like supply and demand no longer applied; key aspects of the economy would be characterized by abundance, by the problems that come from having to allocate surplus.¹ As we all know, whether with iron ore, rice, or water, those scenarios did not come to pass; “too much” is seldom the problem. Throughout the hype, traditionalists held the line: “Durable economic principles can guide you in today's frenetic business environment. Technology changes. Economic laws do not.”² Information goods include encyclopedias, compact discs, cell phone minutes, or equity analysis, all of which are valued not by what they are but what they convey. The characteristics involved in information economics—particularly network effects, lock-in, and pricing behavior—underlie many of the phenomena in this book.

Very few private-sector companies have chief economists. Investment banks, publicly traded homebuilders, and large healthcare firms all might have need for such a position, but generally few companies hire such individuals. In 1998, two economists from the University of California at Berkeley published Information Rules,³ a neoclassical approach to such issues as technology lock-in (why does everyone still use the demonstrably inferior QWERTY keyboard?), information pricing, and standards wars. Unless otherwise noted, all foundation concepts and some examples noted here come from this source.

In ...