The Effects of Technological Change on the Quality and Variety of Information Products

Abstract:     
Anecdotal evidence suggests that producers of information products (TV programs, movies, computer software) may respond to potentially cost saving technological change by increasing, rather than reducing, their total production investments in the "first copy" of each product, possibly at the expense of product variety. Comparative statistics show that under reasonable assumptions about consumer demand and production technology, a monopolist is in fact induced to increase first copy investments as a result of either what are defined as "quality-enhancing" or "cost-reducing" types of technological advance. In a monopolistically competitive industry, first copy investments also rise for both types of technological change, while variety falls or stays the same. Results suggest that contrary to often held expectations, potentially cost saving technological advances in information industries may result in greater market concentration.

Number of Pages in PDF File: 20

Keywords: Technological change, productivity, entertainment, information

JEL Classification: D24, O33, L82, L86

working papers series