Shared information goods

Once purchased, information goods are often shared within small social comm unities. Software and music, for example, can be easily shared among family or friends. In this paper, we ask whether such sharing will undermine sell er profit. We reach several surprising conclusions. We find, for example, t hat under certain circumstances sharing will markedly increase profit even if sharing is inefficient in the sense that it is more expensive for consum ers to distribute the good via sharing than it would be for the producer to simply produce additional units. Conversely, we find that sharing can mark edly decrease profit even where sharing reduces net distribution costs. The se results contrast with much of the prior literature on small-scale sharin g, but are consistent with results obtained in related work on the topic of commodity bundling. Our findings highlight the relative importance of dema nd reshaping, as opposed to cost considerations, in determining the profita bility effects of sharing.