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by: Shawn Pfannerstill IV


Shawn Pfannerstill IV
GPA 3.56


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This 2 page Class Notes was uploaded by Shawn Pfannerstill IV on Thursday October 22, 2015. The Class Notes belongs to PHIL 100C at University of California Santa Barbara taught by Staff in Fall. Since its upload, it has received 56 views. For similar materials see /class/227177/phil-100c-university-of-california-santa-barbara in PHIL-Philosophy at University of California Santa Barbara.

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Date Created: 10/22/15
Notes on Information Technology7Econ 1000 Where there are network externalities the amount that any individual is willing to pay for a product depend on the number of other people who also have the product If this is the case how can we possibly draw a demand curve If we think of the demand function as reporting the number of units that people are willing to buy at a given price then how can we draw the curve It appears that we donlt know how many will buy until we know how many will buy Things become a little less mysterious if we construct the 77inverse demand function77 by focusing on price as a function of quantity rather than the other way around Suppose we ask the following question For any quantity 4 suppose that consumers believe that the number of units sold will be 4 At what price would 4 be the actual quantity demanded Let us consider an example Suppose that people come in 100 different types which are numbered by z 12 l i i 100 If a person of type I believes that 4 people will buy the product she would be willing to pay 100 7 zq for the product Suppose that everybody believes that 4 people will buy At what price would 4 actually be the number demanded I claim that the answer is p 100 7 qqi Why is that If everybody believes that 4 units will be sold then everybody of type 4 or higher will be willing to pay up to 100 7 qqi This is true since if z gt 4 then 100 7 zq gt 100 7 qq so a type I will buy But if z lt 4 then 100 7 zq lt 100 7 qq so that a type I will not buy What does equilibrium look like Draw graph Don7t forget vertical axis is part of demand curve Note that demand is not a function of price There are 3 possible quantities consistent with any price over the relevant range Try a supply curve Now do the in class case 01 Spreadsheets and Word Processors Notice that early leaders often were not winners Wordstar Wordperfect Word Visi calc Lotus Excel Apple Radio Shack Commodore IBM Clones Apple Microsoft Linux Who is big now Eb Leibowitz argues that network effects are not important He also claims that software is cheap Both claims seem questionable to me T e overwhelming dominance of the winning software seems evidence of network effects with feedback to quality Prices of MS Office are very high compared to marginal cost and to average cost Potential competition keeps fees from getting too high 02 Price Discrimination and Information Goods Lecture 2 This lecture is based on the two papers by Varian that are on the class website 1 Internet sales allow personalization of markets that is not possible in brick and mortar stores Example Amazon experiments with offering different prices to different con sumers in order to learn demand functions Internet also allows price to depend on previous purchases or other information about your 2 A study of product versioningibased on Varian7s versioning paperi Draw 77 Quality demand curves77 price on vertical axis quality on horizontal is answer to question 77 What would you pay to have a single item of quality Q77 Note that we are thinking of buyers who buy only one unit This is NOT a traditional demand curve with quantity on the horizontal axis But it is an interesting tool nonetheless Varian7s two type examplei Zero marginal cost of quality If you can distin guish consumer types you would charge areas under demand curves to each If marginal cost is other than zeroishow diagrami Suppose you had to charge the same price to everyone Then you could either make the low quality and charge A or make the high quality and charge B where A lt B Which is better Let p be the fraction of type B7s Depends on whether A gt pBi Note that if pB gt A you charge B and shut out all of the low types This is inef cient since it costs nothing to supply themi You could offer two different pricequality combinations What if you charge A to low types and B to high types Everybody buys Al But you could charge AC to high types See Varian7s picture More pro tably you could debase the quality of the lowtype offering Illustrate with Varian7s picture and show pro tmax point Note that however you do this low type gets no surplus Examples Airlines nuisance restrictions over Saturday night no changes advance purchase Read Dupuit quote from Varian Other examples read from Variant Damage Goods Deneckere and McAfeei More generally there are many types Probably want many versions 77Goldilocks pr1c1ngi 03 Switching Costs and lock in Examples operating systems software printers and printer cartridges razors and blades internet suppliers bank loans brokerage rms online sellers Ama zoni Competitive model with lock in two period version firms not able to commit to period two prices


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