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POLICY AND ECONOMIC FRAMEWORK FOR PUBLIC-PURPOSE 46 ENVIRONMENTAL INFORMATION SYSTEMS scientific validity, the public interest is best served by funding the trunk and roots out of taxpayer resources and by providing full and open access to a set of reliable core products presenting factual information that is potentially useful to a broad range of user groups. The Potential for Commercializing Branches The branches provide an opportunity to develop differentiated products markets for which the prospects for rigorous competition are likely to be better. In a differentiated products market several firms produce similar but distinct products (much like the market for compact cars).14 Determining when a competitive outcome is likely involves a two-step analysis. First, the demand and cost characteristics of each product have to be identified to determine the maximum number of products that can be profitably sold. All else being equal, a market in which demand for each product is âlargeâ can support more vendors; conversely, as average costs increase (due to fewer sales over which the fixed costs can be spread) fewer entrants will be expected. In particular, if demand is not adequate to cover the average costs for only one firm, then no private-sector firm will be inclined to enter the market. For example, scientists alone are unlikely to constitute a viable market. Second, once the number of likely participants is identified, the nature of their interaction has to be considered. Intuitively, as the number of firms increases so does the degree of competitiveness. If a market is large enough to support only one firm and thus the sale of a single product,15 it is likely that the monopoly firm's prices will exceed its costs and thus reduce sales relative to the competitive benchmark. Multiple firms competing in a market are also more likely to create products that meet customer demands for quality and timeliness. 14 If it is cheaper for one firm to produce this set of products, compared to several firms each producing a subset, then the analysis reverts to our discussion of homogenous products (i.e., the monopoly outcome). To simplify the discussion we assume here that each firm sells a single product. 15 If the full panoply of products were sold in this market by an equal number of firms, demand would be insufficient to cover the costs of each firm. By shrinking the set of products sold, customer demand would be shifted to the product sold by the monopoly firm, allowing it to recover costs.
POLICY AND ECONOMIC FRAMEWORK FOR PUBLIC-PURPOSE 47 ENVIRONMENTAL INFORMATION SYSTEMS The community of end users of the core products and their derivatives is diverse (see Box 3.3). It is impossible to envisage all the present and future applications of the information provided by the core products. Hence a flexible system of branches for distributing that information is essential for maximizing the societal benefit of the information system (see also next paragraph). For some communities of end users, competing commercial enterprises that add value to the core products and other sources of information are likely to flourish. Each distinct market delineates a different branch on the information tree. For most end users, factual information in a core product has to be extracted, put in context, and combined with other facts relevant to the purpose at hand. Meeting such needs for a community of similar users can greatly increase the value of the core product itself, presenting a sales opportunity for enterprising intermediaries. In general, the diversity of customer needs and preferences within the community will enable product differentiation and individualized services tailored to those products. The larger the total demand the more competitive the market is likely to be. The specialized skills and market information that are necessary to run such a business successfully are often not available within a government agency. In such cases, private-sector operation of the corresponding branches may be appropriate. On the other hand, public-sector operation of a branch is appropriate when the application is directly related to performance of the agency mission. In addition, the scientific research community, which has a noncommercial rewards system, may choose to organize their own branch dedicated to full and open access and paid for out of research funds. The products created by these basic research branches are likely to spawn additional specialized products as understanding of environmental processes improves or new instruments are developed. As they mature, some of these new products may open new markets for commercial application. Conclusion. Marketing and distribution of core products and creation of value- added products is best provided by a variety of organizations, self-organized to meet the needs of different communities. Some of these value-added branches will exercise proprietary rights to products and services and operate for profit, whereas others will allow full and open access. In the
