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In this chapter, we have explored some aspects of the economics of information products from the point of view of supply, demand, monopoly and competition and the role of government in markets. As a first step we have defined an "information product" as a collection of symbols which has utility because of the way the symbols are arranged. Examples of such products include new inventions, books, and musical compact disks. We have observed that information products have some special characteristics that set them apart from other kinds of goods and services. 1) They cannot be sold alone but only jointly with some medium of communication. 2) Each such product is unique. Information products are not homogenous. 3) Fixed costs for such products are high, since only the costs of the medium of communication are variable (and perhaps not all of them). 4) Because they are easily and cheaply imitated, there may be a problem of insufficient incentive to produce information products. 5) Intellectual property rights are instituted in some cases to provide incentives that would otherwise be missing. All in all, this means that markets for information products cannot be "perfectly competitive" (or in my terminology, p-competitive) but may, in fact, be approximated by the cases of monopoly in some cases and of public goods in other cases.
Many important aspects of markets for information products are illustrated by patents, a form of intellectual property designed to protect those who invest in invention. Patents are a second-best solution to this problem, and accordingly are granted for only a limited term. Other forms of intellectual property share the difficulties we observe in the case of patents. Information products are thus quasi-public goods, and in extreme cases may be public goods. In such cases, profit-oriented private supply is very unlikely, and government provision may be the only alternative to doing without. Adam Smith's lighthouse is an instance of this.
These aspects of information products correspond to tendencies toward underproduction of information products, relative to the economically efficient outputs of these products. But there may be tendencies in the opposite direction as well. Where the rewards of production of information goods go all, or predominantly, to the first or the best producer or to some other individual producer selected on a winner-take-all principle, there may be tendencies to overproduce information products. And it seems impossible to make any general judgments as to which set of tendencies will be the stronger. Instead, it appears that each particular information-producing industry would have to be investigated and evaluated on the details of its operations. An active government policy of adjusting the production of information would have to work differently in each case, and might have to be revised from time to time as changing technology changes the detailed characteristics of the distinct information goods. A conservative will have some doubts about the ability of government policy to work that flexibly, while a committed liberal will hold that, imperfect as pragmatic legislation may be, it is less imperfect than unchanging property rights and inflexible laissez-faire. As the issue rests of the capability of government, it is really beyond the scope of economics finally to answer: we must defer to the political scientists and philosophers at this point.
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