Public vs private goods How digitalization can transform private goods into public goods (and vice...
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Transcript of Public vs private goods How digitalization can transform private goods into public goods (and vice...
Public vs private goodsPublic vs private goods
How digitalization can transform private How digitalization can transform private goods into public goods (and vice versa)goods into public goods (and vice versa)
HEC MONTRÉAL – MBA53-751-03 IT and E-Commerce
Jacques Robert & Jean Talbot, HEC Montréal
Different types of goodsDifferent types of goods
• Good with exclusion: it is possible to exclude some Good with exclusion: it is possible to exclude some from its consumption. from its consumption.
• Good with “rivalness” : if one consume the good, it Good with “rivalness” : if one consume the good, it reduces the available quantity (or quality) for others. reduces the available quantity (or quality) for others.
• Private goods: goods with exclusion and rivalnessPrivate goods: goods with exclusion and rivalness
• Public goods: goods without exclusionPublic goods: goods without exclusion
• Club goods: goods with exclusion but without Club goods: goods with exclusion but without rivalnessrivalness
HEC MONTRÉAL – MBA53-751-03 IT and E-Commerce
Jacques Robert & Jean Talbot, HEC Montréal
Types of goods et examplesTypes of goods et examples
Goods with exclusionGoods with exclusion Goods without exclusionGoods without exclusion
Goods with rivalnessGoods with rivalness Food, clothes, etc.Food, clothes, etc. Road, public concertsRoad, public concerts
Goods without Goods without rivalnessrivalness
Pay (coded) TV Pay (coded) TV TV, radio, national TV, radio, national defense, police and defense, police and security, lighthousessecurity, lighthouses
Private goods Public goods
Club goods
HEC MONTRÉAL – MBA53-751-03 IT and E-Commerce
Jacques Robert & Jean Talbot, HEC Montréal
Public goodsPublic goods
• Important fixed costs, low or inexistent Important fixed costs, low or inexistent variable cost..variable cost..
• Difficulty to prevent free riders from Difficulty to prevent free riders from deriving benefits from the usage of the deriving benefits from the usage of the good. good.
• Production and financing of public Production and financing of public goods are often public choice issues.goods are often public choice issues.
HEC MONTRÉAL – MBA53-751-03 IT and E-Commerce
Jacques Robert & Jean Talbot, HEC Montréal
How to finance public goodsHow to finance public goods
Modes of financingModes of financing InefficienciesInefficiencies
Voluntary contributionsVoluntary contributions Under financing – free rider effectUnder financing – free rider effect
Compulsory TaxationCompulsory Taxation Negative effect of taxes Negative effect of taxes
Make the good with exclusion and Make the good with exclusion and impose access fees. impose access fees.
Costs of limiting access, suboptimal Costs of limiting access, suboptimal consumption.consumption.
AdvertisingAdvertising Advertising annoyanceAdvertising annoyance
HEC MONTRÉAL – MBA53-751-03 IT and E-Commerce
Jacques Robert & Jean Talbot, HEC Montréal
Digital goodsDigital goods• Definition: products that can be contained on a Definition: products that can be contained on a
digital supportdigital support• Information goods has been drastically Information goods has been drastically
transformed by the technology.transformed by the technology.• Napster and al. have transformed information Napster and al. have transformed information
goods (music) into public goods without exclusion goods (music) into public goods without exclusion nor rivalness.nor rivalness.
• The music industry wish to keep music a product The music industry wish to keep music a product with exclusion: either through technology or law. with exclusion: either through technology or law. Is this desirable ? Is this possible ?Is this desirable ? Is this possible ?