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Shared Information Goods

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  • Bakos, Yannis
  • Brynjolfsson, Erik
  • Lichtman, Douglas

Abstract

Once purchased, information goods are often shared within small social communities. Software and music, for example, can be easily shared among family or friends. In this paper, we ask whether such sharing will undermine seller profit. We reach several surprising conclusions. We find, for example, that under certain circumstances sharing will markedly increase profit even if sharing is inefficient in the sense that it is more expensive for consumers to distribute the good via sharing than it would be for the producer to simply produce additional units. Conversely, we find that sharing can markedly decrease profit even where sharing reduces net distribution costs. These results contrast with much of the prior literature on small-scale sharing, but are consistent with results obtained in related work on the topic of commodity bundling. Our findings highlight the relative importance of demand reshaping, as opposed to cost considerations, in determining the profitability effects of sharing. Copyright 1999 by the University of Chicago.

Suggested Citation

  • Bakos, Yannis & Brynjolfsson, Erik & Lichtman, Douglas, 1999. "Shared Information Goods," Journal of Law and Economics, University of Chicago Press, vol. 42(1), pages 117-155, April.
  • Handle: RePEc:ucp:jlawec:v:42:y:1999:i:1:p:117-55
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    File URL: http://dx.doi.org/10.1086/467420
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    References listed on IDEAS

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    1. Benjamin, Daniel K & Kormendi, Roger C, 1974. "The Interrelationship between Markets for New and Used Durable Goods," Journal of Law and Economics, University of Chicago Press, vol. 17(2), pages 381-401, October.
    2. Liebowitz, S J, 1985. "Copying and Indirect Appropriability: Photocopying of Journals," Journal of Political Economy, University of Chicago Press, vol. 93(5), pages 945-957, October.
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    5. Barro, Robert J & Romer, Paul M, 1987. "Ski-Lift Pricing, with Applications to Labor and Other," American Economic Review, American Economic Association, vol. 77(5), pages 875-890, December.
    6. Yannis Bakos & Erik Brynjolfsson, 1999. "Bundling Information Goods: Pricing, Profits, and Efficiency," Management Science, INFORMS, vol. 45(12), pages 1613-1630, December.
    7. Besen, Stanley M., 1986. "Private copying, reproduction costs, and the supply of intellectual property," Information Economics and Policy, Elsevier, vol. 2(1), pages 5-22.
    8. Fernando Nascimento & Wilfried R. Vanhonacker, 1988. "Optimal Strategic Pricing of Reproducible Consumer Products," Management Science, INFORMS, vol. 34(8), pages 921-937, August.
    9. R. Preston McAfee & John McMillan & Michael D. Whinston, 1989. "Multiproduct Monopoly, Commodity Bundling, and Correlation of Values," The Quarterly Journal of Economics, Oxford University Press, vol. 104(2), pages 371-383.
    10. Novos, Ian E & Waldman, Michael, 1984. "The Effects of Increased Copyright Protection: An Analytic Approach," Journal of Political Economy, University of Chicago Press, vol. 92(2), pages 236-246, April.
    11. Besen, Stanley M & Kirby, Sheila Nataraj, 1989. "Private Copying, Appropriability, and Optimal Copying Royalties," Journal of Law and Economics, University of Chicago Press, vol. 32(2), pages 255-280, October.
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