Mod 1 Useful Concepts Information goods and Review of some economic concepts. Lecture 1 Information (Knowledge) Goods All products contain some degree of information.
Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author.While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server.
D with zero elasticity
D with infinite elasticity
CS = 1 PS = 2
DWL = 3+4
Monopoly charges higher price, produces smaller quantity.Monopoly causes Deadweight Loss 1+2. Area 3+4 is transfer to producer from consumer
Losses with efficient output
price before discrimination
2 x 1300
2 x 1200
Definition: Goods that do not get used up when consumed. In other words, one person’s consumption of a good doesn’t reduce anyone else’s potential consumption of the same good.
Examples: Ideas, television broadcasts, national defense.
Obviously, these are not physical items that get used up. Instead they are usually ideas and artistic expressions.
They are at the core of the Information Age Economy, since information is a public good.
The Demand for Public Goods is the vertical sum of individual demands.
Some definitions of Public Goods claim that consumers can not be excluded from using them. Known as Non-excludability.
Some Public Goods, such as broadcasting, or national defense, appear to have this characteristic.
This misses the point. Any product for which consumers can not be excluded from using, e.g., apples, will give producers no incentive to produce.
Book titles can be thought of as public goods, but the physical copies of a single book title are private goods that embody a public good.
Several questions arise: how many titles are optimal to publish? How many copies of each title would be optimal? How do competitive markets work? Monopolies? Finally, is it possible to produce public goods efficiently?
Reproductions of a single Title are Private Goods
Seller of the Reproductions can not appropriate the entire potential value of the reproductions since he is not a perfect price discriminator.
With a single price for the reproductions, too few reproductions are produced (Q*-Qm). One component of lack or appropriation (area 7 in figure).
Consumers of the reproductions get surplus, which is another loss of appropriation for the reproduction seller. (1+2 in figure)
MC of printing
number of copies of a title
Because appropriability for reproductions of any title is imperfect, the sellers of titles can not achieve the vertical sum of demands (perfect discrimination demand in next figure).
Instead, the best the sellers can do is some distance below the vertical sum of individual demands (attainable demand curve in the next figure).
This leads to too few titles being produced relative to the ‘ideal’.
Market Demand for Titles produce efficient amount of public good.
MC of writing another title
Perf Discrimination Demand for titles
Attainable Demand for titles
number of titles written
Dependent variable produce efficient amount of public good.
Age of Journal
.17Evidence on Price Discrimination and Indirect Appropriability
Libraries that: produce efficient amount of public good.
Ratio of Book to Journal Expenditures, US Academic Libraries
Don’t Price Discriminate
Figure 9.5: Windows WP Ratings entail, and is it reasonable?
MS Word Windows
WordPerfect for Windows
In 1994 Prodigy dropped its $14.95 unlimited use pricing and went to the same pricing as its competitors ($10 for 5 hours, $3/hr after).
Microsoft Word Extent of the Internet Transformation.
Microsoft Excel Extent of the Internet Transformation.
An Aside: How Important are OEMs anyway? Extent of the Internet Transformation.
MC=AC pairs of shoes
MC=AC left or right shoes
D pairs of shoes
Seller is thought to have two types of customers – heavy versus light users.
Tied good is thought to ‘meter’ the use of the tying good, to separate heavy from light users.
By lowering price of tying good, and raising price of tied-good, producer increases payments made by heavy user relative to light user.
Problems: heavy users likely to use up machines faster – tie-in may have no impact on relative payments.
Consumers are unsure how much use they will get from the tying good (machine).
This riskiness causes them not to be willing to pay the full expected (predicted) value of the product.
Seller has many such customers and can provide ‘insurance’ since the large numbers makes overall results predictable.
By lowering price of tying good, and raising price of tied-good, producer provides insurance for consumers afraid they might not have much use for machine.