Economics of the “New Economy”*

* This paper is the result of an independent study at California State University, Hayward, from Jun. 24 to Sep. 2, 2002. I would like to thank Prof. Stephen Shmanske for his supervision, discussion, and valuable comments. Helpful reviews by Richard Marliave and Prof. Anthony Lima are gratefully acknowledged. Updated: July 27, 2003 ii The “new economy ” has distinctive features where information technology is allegedly the main contributor to increased productivity and information goods are of central economic importance. Because of the nature of information goods, some market phenomena and issues that have secondary effects for industrial goods often have primary effects for information goods. This paper reviews these market phenomena and issues, such as bundling, network effects, lock-in, and standards, and examines their implications. They are not necessarily new economics; some have been part of the economics literature for decades. But these economic concepts explain important features of the new economy.