The Effects of Technological Change on the Quality and Variety of Information Products
18 Pages Posted: 10 May 2012
Date Written: August 30, 2003
Empirical evidence suggests that producers of information products (TV programs, movies, computer software) may respond to cost-reducing, as well as quality-enhancing technological change by increasing their total production investments in the “first copy” of each product, possibly at the expense of product variety. Models presented in this paper explain this behavior. They show that under plausible assumptions about consumer demand, a monopolist is induced to increase first copy investments as a result of either quality-enhancing or cost-reducing types of technological advance. In a competitive industry, first copy investments also rise for both types of technological change; in the case of quality-enhancing technology, product variety declines, while in the cost-reducing case, rising first copy investments are accompanied by no change in variety. Results have implications for market structure and barriers to entry in information industries.
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