The purpose of this paper is to investigate the distinctive characteristics of the competitive mechanism in the digital economy and information product markets. Specific properties of digital goods and information markets are considered. A theoretical model, based on the game theory and modified assumptions of monopolistic competition, is introduced. The suggested approach enables a theoretical analysis of competitive strategies with possible outcomes for practice. The paper discusses essential conditions for IT firm survival; the interrelation of producer costs/quality/price decisions and customer quality/demand feedback; and a rational for entering and exit the market by new and existing competitors.