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The concept of information as we use it in everyday in the sense knowledge communicated plays a central role in today's society. The concept became particularly predominant since end of World War II with the widespread use of computer networks. Given the central position of information in the New Economy, its approach is made from the economic theo...
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Context 1
... non-rivalrous information goods that are non-excludable (digital music, computer games) and those that are excludable (e.g. encoded satellite TV transmission). The non-excludability property of information introduced the problem of “free - rider”. This occurs when people do not pay the cost but still gets the benefit of an information good or service. o Information as experience good. Experience goods are goods whose quality or value is revealed only when the good is consumed (Shapiro & Varian, 1999). For example, the consumer doesn't know whether or not she will enjoy a movie or a live performance of opera until she has seen the movie or experienced the performance. From the viewpoint of social welfare, limited information can lead to suboptimal consumer choices and decrease the incentives of companies to invest in quality, thus lowering social welfare (Stiglitz, 2002). o Information goods are infinitely expansible. Arbitrarily many copies of information good can be manufactured at a low or zero cost. This property leads to an interesting phenomenon, highlighted by Herbert Simon as “a wealth of information creates a poverty of attention ” (Simon, 1997). The economic properties of information have substantial importance in order to analyze the particularities of cost and value of information goods. Information has become a commodity and is regarded as an important input in production that can be measured. However, information has certain characteristics that differentiate it as an economic good that suggest that the value and pricing of information goods need special attention. Furthermore, the value of information plays a fundamental role in the economy. An information economy is based upon the premise that information has economic value and requires an information marketplace in which such value can be exchanged (Branscomb, 1994). As noted above, information is a distinctive good. Its unique features are evident even in typical cost considerations. The production of information for distribution is characterized by a high fixed cost (the cost of acquiring or developing the information in question) and an essentially zero variable cost. A good example is given by Shapiro and Varian (1999), who state that cost of production is dominated by the "first-copy costs." Once the first copy of a book has been printed, the cost of printing another one is only a few dollars. This means that once the first copy of the information has been produced, additional copies cost essentially nothing. In economics terms, the fixed costs of production are large, but the variable costs of reproduction are small. This zero variable costs reflect information's distinctive characteristics of being essentially non-material and infinitely reproducible. A parallel view on total production cost of a standard good and an information good is shown in figure 1. The main statement that derives from the cost characteristics of information goods is the following: information is costly to produce but cheap to reproduce . The atypical cost structure of information goods in competitive markets result in their marginal cost. Knowing that price is the quantity of payment for an economic good, competitive markets drive prices of all economic goods towards the marginal cost. Information goods tend to have high fixed costs but low marginal costs. This means that creating the first copy is expensive but making a copy is relatively inexpensive (Ponelis, 2007). In other words, producing the first copy of information good involves a large fixed cost F , and a small marginal cost c. This has the consequence that free competition in the market for information goods would lead to a market failure: If information goods could be sold freely, their price would sink to the marginal cost of production (which is zero in the case of the goods which are available on the Internet) and there would be no incentives for paying the fixed cost F , and for producing information goods. Therefore, another statement is derived: the marginal cost of producing for It should be note that there is a different approach of the marginal cost of acquiring information. The marginal cost of acquiring additional information increases because individuals may have to travel greater distances to check prices and services, and also, the opportunity cost of their time increases as they spend more time acquiring information. Thus, the marginal cost of information usually increases as more information about a product is obtained. As it shown in figure 2 the marginal cost curve for additional information slopes upward. Analyzing the marginal benefit it can be observed that it is relatively large at first, but as more information is gathered, additional benefit decreases. We are speaking about the optimal amount of information which is founded where the marginal benefit of information just equals the marginal cost of information. This level of information is identified as perfect information (figure 2). The above considerations lead to the following key-points (Shapiro & Varian, 1999): o Information is costly to produce but cheap to reproduce. o Once the first copy of an information good has been produced, most costs are sunk and cannot be recovered. o Multiple copies can be produced at roughly constant per-unit costs. o There are no natural capacity limits for additional copies. Another main issue is related to the value of information. The question of value in information has been addressed from many perspectives. Considerable studies (Krugman & Wells, 2008) are devoted to refer on informational goods that are products whose values come not from their physical characteristics but from the information they embody. Because replication and distribution costs for the copies after the original are essentially zero online, the price of information goods is not based on cost but on the value attached to the good by individual customers (Jordan, 2012). The value of an information good, X, can then be expressed as the expected value to be gained from the use of that information good, or expressed ...
Context 2
... that depend on the scarcity of products do not easily apply to many information goods. At this point we have to make the following distinction: information non rivalry property is related to the nature of information, while the non-excludability property is conditioned by the legal and technological framework. The scholars in the economics of information do not assume that all information goods are non-excludable. Jones (2002) gives some examples of non-rivalrous information goods that are non-excludable (digital music, computer games) and those that are excludable (e.g. encoded satellite TV transmission). The non-excludability property of information introduced the problem of “free - rider”. This occurs when people do not pay the cost but still gets the benefit of an information good or service. o Information as experience good. Experience goods are goods whose quality or value is revealed only when the good is consumed (Shapiro & Varian, 1999). For example, the consumer doesn't know whether or not she will enjoy a movie or a live performance of opera until she has seen the movie or experienced the performance. From the viewpoint of social welfare, limited information can lead to suboptimal consumer choices and decrease the incentives of companies to invest in quality, thus lowering social welfare (Stiglitz, 2002). o Information goods are infinitely expansible. Arbitrarily many copies of information good can be manufactured at a low or zero cost. This property leads to an interesting phenomenon, highlighted by Herbert Simon as “a wealth of information creates a poverty of attention ” (Simon, 1997). The economic properties of information have substantial importance in order to analyze the particularities of cost and value of information goods. Information has become a commodity and is regarded as an important input in production that can be measured. However, information has certain characteristics that differentiate it as an economic good that suggest that the value and pricing of information goods need special attention. Furthermore, the value of information plays a fundamental role in the economy. An information economy is based upon the premise that information has economic value and requires an information marketplace in which such value can be exchanged (Branscomb, 1994). As noted above, information is a distinctive good. Its unique features are evident even in typical cost considerations. The production of information for distribution is characterized by a high fixed cost (the cost of acquiring or developing the information in question) and an essentially zero variable cost. A good example is given by Shapiro and Varian (1999), who state that cost of production is dominated by the "first-copy costs." Once the first copy of a book has been printed, the cost of printing another one is only a few dollars. This means that once the first copy of the information has been produced, additional copies cost essentially nothing. In economics terms, the fixed costs of production are large, but the variable costs of reproduction are small. This zero variable costs reflect information's distinctive characteristics of being essentially non-material and infinitely reproducible. A parallel view on total production cost of a standard good and an information good is shown in figure 1. The main statement that derives from the cost characteristics of information goods is the following: information is costly to produce but cheap to reproduce . The atypical cost structure of information goods in competitive markets result in their marginal cost. Knowing that price is the quantity of payment for an economic good, competitive markets drive prices of all economic goods towards the marginal cost. Information goods tend to have high fixed costs but low marginal costs. This means that creating the first copy is expensive but making a copy is relatively inexpensive (Ponelis, 2007). In other words, producing the first copy of information good involves a large fixed cost F , and a small marginal cost c. This has the consequence that free competition in the market for information goods would lead to a market failure: If information goods could be sold freely, their price would sink to the marginal cost of production (which is zero in the case of the goods which are available on the Internet) and there would be no incentives for paying the fixed cost F , and for producing information goods. Therefore, another statement is derived: the marginal cost of producing for It should be note that there is a different approach of the marginal cost of acquiring information. The marginal cost of acquiring additional information increases because individuals may have to travel greater distances to check prices and services, and also, the opportunity cost of their time increases as they spend more time acquiring information. Thus, the marginal cost of information usually increases as more information about a product is obtained. As it shown in figure 2 the marginal cost curve for additional information slopes upward. Analyzing the marginal benefit it can be observed that it is relatively large at first, but as more information is gathered, additional benefit decreases. We are speaking about the optimal amount of information which is founded where the marginal benefit of information just equals the marginal cost of information. This level of information is identified as perfect information (figure 2). The above considerations lead to the following key-points (Shapiro & Varian, 1999): o Information is costly to produce but cheap to reproduce. o Once the first copy of an information good has been produced, most costs are sunk and cannot be recovered. o Multiple copies can be produced at roughly constant per-unit costs. o There are no natural capacity limits for additional copies. Another main issue is related to the value of information. The question of value in information has been addressed from many perspectives. Considerable studies (Krugman & Wells, 2008) are devoted to refer on informational goods that are products whose values come not from their physical characteristics but from the information they embody. Because replication and distribution costs for the copies after the original are essentially zero online, the price of information goods is not based on cost but on the value attached to the good by individual customers (Jordan, 2012). The value of an information good, X, can then be expressed as the expected value to be gained from the use of that information good, or expressed ...
