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In information goods, the valuable part is a pattern in which the material is arranged - the arrangement of ink on paper, paint on canvas, magnetic elements on a tape, a series of dents (pits) on a compact disc, etc. Those patterns might be either directly consumed by humans (through reading, viewing, etc.) or may be used to operate other devices such as a cassette player or a computer. The working of device, in turn, may produce some consumable pattern of information (such as visual, sound, or text), another pattern for the use of other devices, or both.
Information goods are often contrasted with material goods such as clothes, food, and cars. The market values of these goods typically rely on both the nature of material and its arrangements. When a car is made of wood instead of metals, for example, the market value of the car would be very limited.
Information goods and market failure
Information goods and uncertainty
A consumer may not be able to assess accurately and reliably the utility of some information goods, such as novels, movies, and newspapers, before consumption of the goods. This is a peculiar property of information goods whereby the process of evaluating utility may require the very process of consumption.
This uncertainty is a type of market failure known as the Lemon Problem and is not unique to information goods. Advertisements, brands, third-party reviews and other secondary sources of information play a bigger role in determining the demand curve by attempting to increase or change information about the good before sale.
Some information goods can be reproduced and distributed relatively inexpensively. Copying recorded music from radio, cassette player, CD player, etc. to a tape or computer hard disc is, for example, widely-practiced in many societies.
What is more, information goods are not consumed by the act of copying. On this basis, some argue that information (but not necessarily information goods) should be provided without cost and limitations to copying.
Information goods and excludability
As digital technologies and digital electronic network in some countries became very popular, it was very easy to reproduce and widely distribute some information goods. However, due to the difficulty of control on copying and distributing activities of individuals using such technologies, it is often harder for the producer of such goods to prevent illegal distribution of proprietary works.
Economic Theory and the treatment of Information
In Economics, information plays at least a double role. On one side, perfect information is a key element to explain efficient-market hypothesis. Here, information is understood to be instantly available for everybody at no cost and being complete.
On the other side, actual markets often depend on information as a commodity: information goods. Here, information is understood to be restricted in access, costly and often only partially available.
Thus, economic theory faces the problem of constantly dealing with two contradictory concepts of information at the same time. If "efficiency" is the dominant aspect of analyses, it is likely that commodification is considered to be harmful. If "incentive for creation" is the dominant aspect of analyses, the protection of the creator is likely to be dominant.
But Economists seem to lack a general principle according to which this decision can be made systematically. Thus, Boyle concludes that in economic analyses "the nature of information is 'in a state of doubt'".
Earlier analysis by Bates, proposed that "... it is suggested that an extended and redefined conceptualization of the value and costs of information goods can internalize the perceived externalities and allow the consideration of such goods as regular economic goods.".
- Boyle, James. Shamans, Software, and Spleens: Law and the Construction of the Information Society. Cambridge: Harvard UP, 1996
- Bates, Benjamin J. Information as an Economic Good: A Re-Evaluation of Theoretical Approaches. In B. D. Ruben & L. A. Lievrouw (Eds.), Mediation, Information, and Communication. Information and Behavior. Volume 3 (pp. 379-394). New Brunswick, NJ: Transaction, 1990.
- Shapiro, Carl and Varian, Hal R. Information Rules: A Strategic Guide to the Network Economy. Harvard Business School Press, 1st edition (November 1998). http://www.inforules.com/