Consumer Choice, Information Product Quality, and Market Implications

The paper concerns with the peculiarities of consumer choice in information product markets. This is a multidisciplinary study based on both information system research and microeconomic theory. An extension is introduced to the conventional general theory of consumer choice for explicitly taking into account the impact of information product quality on consumer behaviour. Multiple quality characteristics, considered against the price of product, are an essential reason for consumer choice of high tech product in general and information product in particular. We assume that consumers are able to aggregate their preferences of multiple product characteristics into a product preference order. On the supply side, the product quality characteristics incur costs. In the case of information product, those costs are the costs of the first copy, and marginal costs are near zero. All of the above constitute the distinctive characteristics of the competitive mechanism in the digital economy and in information product markets. A model, based on the game theory is used to consider two special cases. The first one deals with monopolistic competition for a share of the market with a limited number of customers. Conditions are derived for IT firm survival. The second one considers conditions at which a monopoly is able to successfully introduce a new version if its information product.