This article lays the conceptual foundations for the study of the market value of information commodities. The terms “information” and “commodity” are given precise definitions in order to characterize “information commodity,” and thus to provide a sound basis for examining questions of pricing. Information is used by marketplace actors to make decisions or to control processes. Thus, we define information as the ability of a goal-seeking system to decide or control. By “decide” we mean choosing one alternative among several that may be executed in pursuit of a well-defined objective. “Control” means the ordering of actions. Two factors make it possible to turn something into a commodity: (1) appropriability, and (2) valuability. If something cannot be appropriated (i.e., owned), it cannot be traded; moreover, if it cannot be valued, there is no way to determine for what it might be exchanged. We define an information commodity as a commodity whose function it is to enable the user, a goal-seeking system, to obtain information, i.e., to otain the ability to decide or control. Books, databases, computer programs, and advisory services are common examples of information commodities. Their market value derives from their capacity to furnish information. © 1992 John Wiley & Sons, Inc.

Information commodities make use of storage, processing, and communication capabilities in varying degrees to acquire market value. We have identified five major value-adding dimensions of information commodities: (1) kernel; (2) storage; (3) processing; (4) distribution; and (5) presentation. The kernel is the (organized) information provided by an information commodity. The storage dimension of an information commodity encompasses both the medium used to store information and the method used to gain access to it. Computer-based, as opposed to traditional, commodities can process and reconfigure the information stored within them. Processing adds value by making it possible to transform the kernel. Distribution adds value by making the kernel of an information commodity accessible to the user. Presentation, the final link in the value-adding chain, involves the display of information in forms suitable to the user. The five value-added components provide the basis for an analysis of the cost of producing an information commodity. Major steps in the analysis include: (1) Identification of subtasks in the production process. (2) Determining interdependencies between subtasks. (3) Construction of digraph representing interacting subtasks. (4) Determining the costs of the subtasks and their respective allocations. (5) Using the digraph representation to answer questions about production costs. © 1992 John Wiley & Sons, Inc.

The derived-demand price of an information commodity depends on the commodity's cost impact on a user's production process. We model an arbitrary production process as a collection of interrelated tasks which can be represented in the form of a production digraph. The nodes of the digraph represent the subtasks in the production process. A directed edge from node a to node b signifies that the subtask corresponding to node b, in order to perform its function, requires input from the subtask corresponding to node a. Appropriate weights, representing costs, are assigned to nodes and arcs. The production digraph allows for investigating cost reduction possibilities. To reduce production costs we have to lower subtask-costs, or lower the total by restructuring. The trick is to determine which subtasks to choose as reduction candidates, or to discover how to restructure the production process so as to reduce the costs. The digraph model is used, in particular, to estimate the maximum price a user should be willing to pay for an information commodity. If a producer could, by introducing some information commodity, lower production costs by x dollars, the user may be willing to pay as much as x dollars for the commodity. © 1992 John Wiley & Sons, Inc.