Public vs private goods How digitalization can transform private goods into public goods (and vice versa)

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



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



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.



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



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 ?

Documents

Public vs private goods How digitalization can transform private goods into public goods (and vice versa)