Cost recovery in pricing and capacity decisions for automated information systems

Abstract

This paper examines the cost-benefit implications of alternative pricing and capacity investment decisions for automated scientific and technical information retrieval systems. Two typical systems are examined and numerical examples presented. In the first system, search requests are entered on-site. The numerical examples show how setting price to maximize net social benefit precludes total cost recovery and implies subsidization. In the second hypothetical system, search requests are entered from remote access terminals. Allowance is made for random arrival rates, and distinction is made between system charges to users and other user incurred costs. With these refinements, the numerical examples show how, for certain ranges of output, total cost recovery is consistent with the maximization of net social benefit. The paper then examines the attributes of scientific and technical information retrieval systems and concludes that such systems can be viewed as goods, since the information stored has the characteristics of a public good while access to this information has the characteristic of a private good. Based on the public good considerations and the numerical examples, the paper concludes that subsidization for the fixed costs is warranted to the extent that all reasonable alternatives which maximize net social benefit preclude total cost recovery. Key Words; Automated information retrieval; cost-benefit; public good; scientific and technical information; semi-public good; subsidization; total cost recovery; user charges. * Interplan Corp. , 100 N. Hope Avenue, Santa Barbara, CA 93110 COST RECOVERY IN PRICING AND CAPACITY DECISIONS FOR AUTOMATED INFORMATION SYSTEMS