The online database industry has annual sales of US$6.5 billion for a product that can be easily appropriated, duplicated, reused, and redistributed. This paper examines how the industry developed dynamic pricing and delivery strategies as a response to technological and market changes, and shows how each strategy specifically compensated for the public good properties of information. Readers will see that specific pricing strategies reduce the incentive to improperly reuse downloaded information. Thus, these strategies can lead to the sustainability and growth of the online database industry. These findings are then extended to the broader context of information delivery via the Internet.
This paper explores the issue of scale economies in the construction of information systems. Economic theory is used to identify transaction attributes that contribute to scale economies and the concept of an information system is then decomposed into separable components. Each component is analyzed with respect to the availability of one or more of the sources of scale economy. The analysis finds that each component possesses at least some potential for realizing scale economies and that some components may realize very large per-unit cost savings as scale of system use or capability is expanded. The implications of these findings for the organization of information services, including outsourcing, are highlighted and illustrated with consistent examples from IS-intensive industries. Future research is proposed with respect to the actual nature of IS scale economies; the presence of scope economies with respect to multicomponent systems; the relative importance of production costs, transaction costs, and benefits as determinants of acquisition choice; and the impact of IS acquisition method on the organization of firms and industries.