Ownership and pricing of information: A model and application to open access

We consider a spillover externality in the use of information. When a person consumes an information source, she enjoys private benefit but also creates social value. Her use of the source enhances society’s understanding of it, which is ‘in the air’ and freely accessible by others, but which decays in quality over time. We ask how efficiently information will be used in the presence of this externality effect under four cases: exogenously given prices, ownership and pricing by a profit-maximizing monopolist, ownership and pricing by a firm restricted by competition or mandate to earn zero profit, and open access. Information is overpriced and underused under both monopoly and zero-profit ownership, and underpriced and overused under open access. However, as the cost falls toward zero, outcomes under zero-profit ownership and open access both tend toward the efficient level, and for-profit monopoly ownership is increasingly inefficient. Potential efficiency gains from open access and zero-profit ownership are therefore greater as advances in technology reduce the costs of delivering information to consumers.