Shared Information Goods*

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