To sell public or private goods

Simon Loertscher and Leslie M. Marx ()
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Leslie M. Marx: Duke University

Review of Economic Design, 2022, vol. 26, issue 3, No 8, 385-415

Abstract: Abstract Traditional analysis takes the public or private nature of goods as given. However, technological advances, particularly related to digital goods such as non-fungible tokens, increasingly make rivalry a choice variable of the designer. This paper addresses the question of when a profit-maximizing seller prefers to provide an asset as a private good or as a public good. While the public good is subject to a free-rider problem, a profit-maximizing seller or designer faces a nontrivial quantity-exclusivity tradeoff, and so profits from collecting small payments from multiple agents can exceed the large payment from a single agent. We provide conditions under which the profit from the public good exceeds that from a private good. If the cost of production is sufficiently, but not excessively, large, then production is profitable only for the public good. Moreover, if the lower bound of the support of the buyers’ value distribution is positive, then the profit from the public good is unbounded in the number of buyers, whereas the profit from selling the private good is never more than the upper bound of the support minus the cost. As the variance of the agents’ distribution becomes smaller, public goods eventually outperform private goods, reflecting intuition based on complete information models, in which public goods always outperform private goods in terms of revenue.

Keywords: Revenue maximization; Public goods; Mechanism design; Non-fungible token (NFT); Bilateral trade (search for similar items in EconPapers)
JEL-codes: C72 D82 L13 (search for similar items in EconPapers)
Date: 2022
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DOI: 10.1007/s10058-022-00305-7

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