Information Goods (Economics)

Information goods, in the framework popularized by Carl Shapiro and Hal Varian in Information Rules (1999), are any goods that can be "encoded as a stream of bits": books, journals, software, music, films, databases, maps, weather forecasts, web pages, and the entries in a knowledge commons. They share three economic peculiarities. First, they exhibit an extreme cost structure: a high fixed Fixed vs Variable Cost (writing, recording, coding, fact-checking) and an effectively zero Marginal Cost of Digital Reproduction once a digital master exists. Second, they are experience goods — buyers cannot fully assess value without consuming the product first, which forces sellers to rely on previews, reputation, branding, or reviews. Third, in pure economic terms digital information goods are non-rival (one person's use does not diminish another's) and only partially excludable, sliding them toward the territory of public goods. Standard pricing rules break: "price equals marginal cost" would set price to zero and never recover fixed costs. The Shapiro–Varian remedy is value-based pricing — charging different buyers different amounts based on willingness to pay — implemented through versioning, bundling, Freemium tiers, site licenses, and time-based release windows. Intellectual property law (copyright, patents, trade secrets) supplies the artificial excludability without which information goods would be hard to monetize at all.