Information and know-how constitute perfect examples of what economists call public goods. A public good is a commodity or a service in which the “consumption” of one agent does not preclude its use by other agents, where the term agents here refers to consumers and firms. See Kindleberger (1983) and Varian (1995) for discussions of public goods in this context.

Further, there are two reasons why we view information industries as network industries. First, since buyers of information can reproduce it at a relatively low cost and then distribute it or sell it to other consumers, information providers must take into account the “networks” at which their information products are distributed. Such networks may include legal and illegal copying, rental stores, and libraries. Second, with the transition from printed to digital information, the transmission of information may result in congestion over the network resulting from overloading of the system by many information seekers.

Section 7.1 characterizes the major networks under which information is diffused. Section 7.2 provides a comprehensive analysis of one particular “network” of information distribution, namely, libraries and rental places. Section 7.3 develops the economics of the Internet, which is likely to dominate all other forms of information distribution networks in the near future. Section 7.4 briefly describes various methods commonly used in determining how to price information products.

Information Reproduction

Pricing of information depends on how information is reproduced or copied. Therefore, before analyzing how the distribution of rents vary with the various copying technologies, we need to understand how information is diffused.