[1] Examples of information goods includes books, journals, computer software, music and videos.
Conversely, for industrial goods, the unit cost of production and distribution usually dominates.
Providers of information goods and services are increasingly adopting leasing models.
Bakos & Brynjolfsson (1999) found that Bundling large numbers of unrelated information goods can be surprisingly profitable because the law of large numbers makes it much easier to predict the value consumers place on bundled goods than if they were sold individually.
[10] Versioning is a method of implementing second-degree price discrimination through varying the quality of a product.
For information goods providers, producing different versions is relatively easy and cost-effective, especially for established products like a mail program or a communications portal.
For products that follow open standards or are compatible with other competing brands, vendors may consider reducing their versioning activities as it may not produce the desired benefits.
[15] The unique characteristics of information goods complicate many standard economic theories.
[16] Economic theories on information goods face the problem of dealing with two contradictory concepts.
[20] Improvements in digital technology have also allowed information goods to be easily reproduced and distributed.
[22] As a result, information goods can suffer from adverse selection and result in a type of market failure known as the lemon problem, which is where the quality of the goods traded in the market can decrease due to asymmetric information between a buyer and seller.
Producers of information goods can engage in a number of strategies to address the market failure that arises.
Additionally, to prevent market failure, producers can establish and maintain their brand reputation.
Parker, GG & Van Alstyne, MW 2000, ‘Internetwork externalities and free information goods’, Proceedings of the second Association for Computing Machinery conference on Economic Commerce, Association for Computing Machinery, Minneapolis, Minnesota, pp. 107–116.
Shapiro, C & Varian, HR 1998, Information rules: a strategic guide to the network economy, Harvard Business School Press, Brighton.