Because information goods have high fixed costs of production and near-zero marginal costs of reproduction, cost-based pricing collapses toward zero and fails. The price of an information good should instead be set according to the value it delivers to each customer, which pushes firms toward differential pricing rather than a single uniform price.
Offer the same underlying information in multiple versions that differ on dimensions like delay, resolution, convenience, features, or support, so that customers self-select into the version matching their value. This lets a seller extract more surplus without knowing any individual's willingness to pay, since high-value users choose the premium version and low-value users choose the degraded one.
When customers face costs to switch suppliers (retraining, data conversion, lost loyalty benefits), they are locked in, and the value of that lock-in equals the total switching costs the customer would bear plus any costs the new supplier would incur. A seller can profitably invest up to the present value of this locked-in revenue stream to acquire or retain each customer.
In markets where a product becomes more valuable as more people use it, success feeds on itself: the strong grow stronger and the weak grow weaker, often tipping the market toward a single dominant standard. This demand-side economy of scale (network effects) is distinct from traditional supply-side scale economies and makes achieving critical mass the central strategic goal.
A firm backing a technology standard faces a tradeoff between a larger total market and its own share of that market: opening a standard grows the pie but shrinks your slice, while keeping it proprietary does the reverse. The right choice depends on whether your advantage lies in your installed base and complements (favoring control) or in needing allies to reach critical mass (favoring openness).
A company's ability to win a battle between incompatible technologies rests on identifiable assets: control of an installed base, intellectual property rights, ability to innovate, first-mover advantages, manufacturing capabilities, strength in complements, and brand name and reputation. Comparing your stock of these assets against rivals tells you whether to fight, ally, or concede.