Information Oversupply

Is it realistic to suppose that there could be inefficient overproduction of some kinds of information products? New classical musical compositions are information products, and one study indicates that they are being written in greater numbers than can be performed, so that the backlog of unperformed compositions keeps increasing. In markets for textbooks, new editions are brought out at fairly frequent intervals, in order to "kill off the resale market," that is, to make used copies obsolete so more new copies can be sold. Similarly, in markets for software, new versions are frequent in part as a means of making the copies not in people's hands obsolete. Investment to create obsolescence can also lead to tendencies to overinvestment. Certainly, markets do allocate substantial resources to the production of information goods in these industries.

In some of these cases, there may be non-profit-oriented motivations for supply of information products. Some of the classical musical compositions may have been written more because the composers enjoyed expressing themselves in this particular media. and while textbooks usually seem to be published with a view to profit, some other books are not. "Subsidy publishers" produce books paid for by the authors -- and their profit margin, if any, comes from the fees paid by the authors. The profits from the publication, if any, go to the authors. The books produced by subsidy publishers include political and theological tracts that express the strongly held beliefs of the authors and fiction and literary works for which no conventional publisher can be found. This suggests that non-profit-seeking motives of the authors are the most important factors in the production of these books. Nonprofit corporations also play an important part in publishing, especially (again) for literary works, theology, politics, and research results. Most research results and literary works from university scholars pay the authors nothing and many are published by nonprofit corporations. Evidently motives other than direct profit -- including reputation, which can lead indirectly to profit -- plays an important role in the supply of these information products. Broadcast radio and television provide no-fee access to such fabulously popular information products as the Super Bowl. Of course, the motive for this supply is promotional, and the costs are borne by the sponsors. Many items of software and other information products have been offered free on the Internet to be downloaded. (I myself have administered a World-Wide Web site that offers economic material and a guide to covered bridges without any expectation of any revenue from it. I can say that my motivations have been a mixture of self-expression, reputation, and promotion, with different mixtures for the different services on the server).

We should observe in passing that nonprofit publication can lead to differences in quality. It is widely assumed that publications from subsidy publishers are of inferior quality. Novels produced by profit-seeking publishers presumably are seen by the publishers as having the promise of a large and profitable audience. On the other hand, when a novel is brought out by a subsidy publisher, it is possible that no-one other than the publisher thinks it is any good. On the other hand, the quality considerations can go the other way. For research results, the work is not published until one of more editorial consultants, with expertise in the same field of research, have cleared it as being reliable. This is called "peer review," since it is review by a person of equal expertise, a "peer" in research. A profit-seeking publisher might be tempted to substitute popularity in the marketplace for this test of scientific reliability. This probably accounts, in part, for the importance of non-profit corporations in scientific publication (although profit-seeking publishers have also been important in this field and seem to be growing moreso).

We have seen that "horse race" effects can lead markets to oversupply information products, to the extent that profit motivations determine decisions to produce information products. We have also seen that motivations other than direct profit may be important in determining the supply of information goods. Both of these tendencies will to some extent offset the tendencies toward underproduction we discussed in earlier sections. Both kinds of tendencies will be present in many markets for information products. What sort of balance can be expected? Will the tendencies toward overproduction just balance those toward underproduction, leaving us back at the efficient output? That would be a remarkable coincidence! In most cases an imbalance one way or the other is almost certain. Will the tendencies to underproduction predominate, and only be partly offset by the tendencies to overproduction, or will it go the other way around, so that information products are overproduced?

If they are overproduced, then government policy to encourage the production of information goods would just make the overproduction worse. In such a case, it would be efficient for government to discourage the production of information goods, perhaps by taxing them. In such a case, we might speak of "information pollution," and perhaps regulations against excessive information production would be proposed. I do not know that anyone has seriously proposed an information tax or regulations against excessive "information pollution," but these would be efficient if information products were generally overproduced.

Thus, the question -- which way does it balance out? -- is important for practical purposes of determining what sort of government policy toward information we should have. In practice, there probably is no general answer. In some cases, where intellectual property rights are weak or missing, the medium itself a public good, horse race effects missing and non-profit motives weak, as with Smith's lighthouse, there will almost certainly be underproduction. In other cases, where intellectual property rights are fairly effective, the medium a private or nearly private good, horse race effects important, and nonprofit or indirect profit motives important -- as in the market for economics textbooks, we suspect -- overproduction is a real possibility. Moreover, the answers to these questions are not permanent, either -- they are likely to change as technology changes.

Chapter Summary