This book discusses the principles behind the economics of “information goods”.

In the language of economics, information involves high sunk costs, and very low marginal costs - in other words, information is expensive to create, but costs next to nothing to reproduce, and there are virtually no limits to the amount of copies that can be produced. Information commodoties trend towards the marginal cost: zero, meaning that selling information commodities is not likely to be successful in the long run. There are two sustainable structures for an information market:

1. In the dominant firm, the largest company in the market has a cost advantage through economics of scale.

2. A differentiated product market, like the film industry, involves a number of firms producing the same type of information, with many different varieties.

This leads to the conclusion that the strategies to follow are to either differentiate your product, or be the cost leader in your market. A price war may lead to a victory that isn’t worth winning because of the extremely slim margins. If you are the dominant player in the market, don’t be greedy - it’s often better to sacrifice some of your margins in order to keep out competitors. Don’t start a price war unless you are sure you can win, but if you are, be seen as willing to “drop the bomb” and slash prices. By sending this signal, you make other companies wary of encroaching on your territory, knowing that they won’t recoup their investments if you cut prices to the bone.

You have some room to maneuver with regards to pricing and your product if you are fortunate enough to have a unique source of information. To capture as much value as possible, personalize your product to its target as closely as possible. Targeted on-line advertising is an example of this.

Whatever your business, knowing your customer is valuable, and need their feedback in order to improve, and better target your product.

Price discrimination is the art of attempting to match as closely as possible the curve describing what people will pay for your product. A few people will be willing to pay a lot, but if your price is high, you exclude all the people willing to pay less money. On the other hand, too low a price, and you lose out on the money the high spenders would have been willing to pay. There are three ways