The emergence of the Internet has significantly reduced the marginal cost of digital information goods. It also corresponds with the mergence of new competitive strategies such as large scale bundling. (Bakos, Brynjolfsson, 1998)
The emergence of the Internet as a way to distribute digital information such as software, news stories, stock quotes, music, photographs, video clips, and research reports has created new opportunities for the pricing of information goods. Providers of digital information goods are unsure how to price them and are struggling with a variety of revenue models. Because perfect copies of these goods can be created and distributed almost costlessly, some of the old rules, such as "price should equal marginal cost," are not sensible (Varian, 1995).
It has been argued that because electronic markets lower search and transaction costs, the Internet will promote the creation of new markets, leading to an increased number of markets in individual goods and services (Bakos, 1997; Malone, Yates and Benjamin, 1986).
Ubiquitous low-cost networking and low-cost digital processing and storage of information will profoundly affect the incentives of sellers to aggregate goods that can be delivered in digital form, enabling them to take advantage of cost savings and to price discriminate. (Bakos, Brynjolfsson, 1997) The Internet is precipitating a dramatic reduction in the marginal costs of production and distribution for digital information goods, while micropayment technologies are reducing the transaction costs for their commercial exchange. These developments are creating the potential to use pricing strategies for information goods based on aggregation and disaggregation. Because of the ability to cost-effectively aggregate very large numbers of information goods, or, at the other end of the spectrum, offer small components for individual sale, these strategies have implications for information goods that are not common in the world of physical goods. In particular, aggregation can be a powerful strategy for providers of information goods. It can result in higher profits for sellers as well as a socially desirable wider distribution of the goods, but it is less effective when the marginal production costs are high or when consumers are heterogeneous.
Disaggregation strategies enable sellers to maximize their profits by price discriminating when consumers are heterogeneous. For example, the number of goods desired by individual consumers may be correlated with their valuation for these goods, as when a professional stock trader demands more financial news stories and has higher value for these stories than an individual investor. The seller can take advantage of this correlation by incorporating the signal that reveals the consumer’s valuation, i.e., the number of news stories purchased, in the pricing of the goods, resulting in some type of pay-per-use pricing. In general, the pricing scheme used should incorporate all signals that may reveal a consumer’s willingness to pay, and micropayment technologies can enable the implementation of such schemes.
This development and interaction between consumer/customer and the corporations clearly indicates the impact and implications that internet has brought on the business sector.
On a small scale the internet allows for anyone anywhere to conduct business online, on a large scale the internet has brought together every aspect of business and created a cyber marketplace where car dealers, software producers, and home cleaning product fight for the consumers attention in one medium.
