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tifies further investment in information, and so on. Thus one can
begin to apprehend the economic development of the last two hundred
years and more, in which per capita income has been steadily
increasing. These few remarks do not constitute a full story by any
means; going from them to a full-scale model which implies exponentially
rising per capita income is not that easy. In particular, the interaction
with population growth is very much an unsettled issue.
The increasing returns generated by information is basic to the
issue of viable competition in information-intensive industries. In the
field of computer software and operating systems, the physical costs
of production are trivial or even zero. The cost of a product is almost
entirely the development cost which, in turn, is almost entirely knowledge
acquisition. As might be expected from economic theory, severe
policy problems are being created.
The last case raises one major issue in the analysis of increasing
returns in general, including that generated by the economics of information:
pricing. Clearly marginal cost pricing becomes incompatible
with private enterprise. The issue is not new; Cournot in 1838 perceived
the incompatibility of increasing returns and perfect competition
and developed the theories of monopoly and oligopoly to deal
with them. Despite recurrent bouts of analytic interest, a full analysis
of imperfect competition is not yet within our grasp.
There are many aspects of the economics of information that I have
not even touched on. But I hope enough has been said to make the
subject interesting.
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