Understanding the Network Economy: ICTs, Intellectual Property, and Economic Models, Appunti di Economia E Innovazione

Scarica Understanding the Network Economy: ICTs, Intellectual Property, and Economic Models e più Appunti in PDF di Economia E Innovazione solo su Docsity! ECONOMICS OF ICT & MEDIA CIME, a.a 16/17 dora berti COURSE’S STRUCTURE 1. Introduction to the network economy: knowledge, innovation and ICTs ​(definitions, differences, the socio-economic debate and the 2 opposite approaches to contemporary economy) 2. Information as an economic good: search vs. experience goods; information vs. knowledge ​(characteristics of information goods, bundling, tying strategies) 3. Models of innovation and ICTs ​(Arrovian model, knowledge seen as a private/public/collective good) 4. ICTs as General Purpose Technologies (GPTs) vs. Localized technological change ​(GPTS VS LTC) 5. Competition and the characteristics of ICT markets: (​differentiation, switching costs and lock-in, economies of scale and network economies, standards​) 6. ICTs and intellectual property rights 27.2.17 ICT’s Economy is studied within three main models: information economy - knowledge economy - network economy → contemporary keypoint: ​information​ (allows to improve a competitive advantage) Differences between information, knowledge and data: data: ​facts, descriptions of the world. data is objective. we collect data (that is world’s facts) through our senses and manage them within our brain. knowledge: ​the way we perceive facts, it is our brain model of the world. It can be transformed → ​digitally codified ​(in bits) into information. knowledge also means ​workers’ competences​, being it a set of beliefs, skills and other subjective characteristics. information​: stored data and knowledge​. → ​information​ ​can be elaborated into knowledge (we absorbe information and elaborate it). ​That is why knowledge is more complex than information 2) ICTS AS A REVOLUTION On the other hand, some authors define ICT as ​a paradigmatic shift ​(KUHN, 1962 → the scientific paradigm theory + carlotta perez, 2002). In science, at given points, there are ​breaks in the theoretical apparatus​ that shift and renew the whole paradigm​. NB ​the idea was introduced by kuhn and appllied to ICTS by Perez. in this perspective, ICTS are seen as a ​factor of change in consumers’ behavior and in the balance supply/demand​→ different and new rules in the modern economy. Different perspectives from different authors in brief​: 1) ​Varian, Shapiro -​ authors who see ict as an ordinary factor of the economic evolution’s path: → knowledge and information ​can be considered as ​STANDARD ECONOMIC GOODS​, subjected to the traditional economic laws of competition and free markets. →from this p.o.v, ​the rules of ICT market are the same we observe in traditional economic markets. ● according to shapiro a larger firm has more competitive advantage that a small firm...but he can’t explain new small firms with good mrkt share. 2) Benkler, Lessig, rifkin, chris Anderson, von Hippel ​- group of authors that see icts as a radical revolution (paradigmatic shift): → to them, the ​digital revolution opens up new ways to organize economic life​. Given examples: sharing economy, peertopeer, creative commons, democratisation, small firms, horizontal and flat organizations. ● benkler introduces the word PROSUMERS​ (blablacar for instance: the members are both providers of a service - giving a payed lift- and consumers) other examples of prosumers: file sharing. empirical evidence shows us that ICTS created ​quasi-monopolies​ (google, amazon, android) → ​both approaches are useful​ from different perspectives, to explain different situations and realities. 28.2.17 A deeper comparison between the 2 approaches a) the shapiro & varian​ approach​ ​(varian is chief economist @ google) # models to understand ict market and the network economy are the traditional ones​, there’s no need of a new set of models. (some have to be revisited→ ​increasing returns​) this approach studies the classic production function (of capital & labour) → y = k​alfa​, l​beta (​α, β​ = intensity) but while ​standard microeconomics assumes that alfa plus beta is minor than one​→ new approaches argue that alfa plus beta is major than one. CLASSIC APPROACH​ ​α + β< 1 → ​representation of increasing return​: if alfa+beta is smaller than one the production function is drawn as follows: y = k​alfa​, l​beta con ​α + β< 1 (es alfa = 0,4; beta = 0, 3) NEW APPROACH ​α + β> 1 → ​new approaches, in contrast, assume that alfa plus beta is major than one​→ assuming that alfa plus beta gives >1, the curve is increasing, as follows: y = k​alfa​, l​beta con ​α + β>1 (es alfa= 0.7, beta = 0.6) # ​icts do not change economic variables at play # market structure and competitive dynamics are those well known by economists # competitive factors​:​ scale economies and firm dimension (in particular: the larger you are the more you grow - as afirm), financial resources, R&D (research and development, IPRs (intellectual property rights) (positive feedbacks = network externalities) # oligopolistic and monopolistic markets​ → one or a few firms in a leading position, exploiting all market revenues. (e.g android, microsoft for software, google for search engine, amazon for e-commerce, apple= born as an alternative to microsoft and ibm’s software) b) second approach​ ​→ bunch of authors (anderson, rifkin, benkler, lessig, von hippel) # traditional notions and models are completely inappropriate​, because ICTs are a completely new kind of mrkt. # icts radically change economic variables at play # new structures and behaviours​: growing idea of collaborative firms (networks) opposed to the old structure based on competition→ new ​firms share their resources to improve the product ​→ birth of peer production.​ new model of economic behaviour​: prosumers (first example linux) # new factors:​ ​knowledge sharing, openes vs appropriation (birth of copyleft, growth of open software, knowledge ecc). new idea​→ ​“small is beautiful” opposed to the shapiro and varian pov “the larger, the better” # new markets​:​ horizontal mrkts, co-opetition, sharing economy. anderson “the long tail” → observing the digital mrkt of creative products→ new market made of many titles, but smaller than ever. → growth of market niches (nicchie). *von hippel (boston MIT) studies innovation of ict market → “democratisation of economy”: defeating monopolistic/oligopolistic markets with cooperation / p2p / sharing. sharing economy​ = based on the new idea of ​not owning the product​ i use (carsharing etc) mrkt niches​ = growing small niches where single users can buy the product they prefer. thanx to niches market i’m not binded to buy products/services of a monopolistic firm. Abramovitz & Solow’s theory Abramovitz (1956) & Solow (1957) wrote 2 papers showing the same results. (solow won the nobel prize for his publication) key point of the 2 papers: economy failed to understand growth because it focused on scale economies before abramov. and solow​: the way to grow was the scale economy: increase the input for an output increase (production model y = f {k, l}). → Ab. and Solow showed that more than 40% of us GDP growth could not be accounted by scale economies (for ex. growth in input). → ​the world bank confirmed their theory for ⅓ of world’s economy. according to A and S, what can explain this almost half growth? → ​the introduction of innovation. → not only a change in input quantity ​but also a change in input ​quality​ ​. production growth is not only a matter of quantity but also of quality. Abramovitz and Solow introduced the idea that technology and innovation are a key variable of economic growth. Two different definitions of ICTs: GPT vs LTC ICTs are seen today as an engine of growth, being a part of technology… but ​WHAT KIND of growth? 1) ICTS as general purpose technology​:​ is seen as something that gives benefit in all context, despite the social, cultural, geographic, etc characteristics in this perspective, the ​underdeveloped countries will catch up​ the developed countries → ​economic convergence​: everybody grows. 1) ICTs as Localized Technological Change​: this second perspective takes into account the digital divide: there are countries growing at a lower rate, because of social, cultural etc characteristics. → in this perspective, ​there won’t be any catching up​: developed countries constantly grow at a higher rate. 1st img → world bank data​: how much does ICT contribute to GDP growth, in countries with different income levels? from 90s to early 2000: we see a convergent trend but from 2000 to 2012 we observe a divergent trend: and the growth is stronger for low and low middle income countries. 2nd img​ european ict growth (interesting east countries) 3d img​: broadband affordability :costs of broadband are lower in developed countris→ africa has highest costs for broadband implementation 4th img​ top 10 countries with ​most installed bandwidth​: in 1986 US owned 27% and was the first country to use bandwidth → in 2014 china owns 29% there is a linear relation between technology’s adoption and growth→ technology is given to all actors and adoption is free. Technology is the key BUT​ ​in reality there’s digital divide ​→ the second perspective we’re about to analyse, takes it into account: 2) ICTs as localized technological change​ ​(freeman, perez) = technology is not diffused in the same way among different contexts, it has different growth rates. → technology interacts with social, economic, institutional factors→ ​NO technological determinism. Technology is a key element, but its rates of growth depend on the characteristics of the context in which it is adopted: initial conditions in which it evolves, matters! the growth path is a punctuated technological evolution. not smooth but disrupted →​ because technology adoption is not free​: ex: knowledge costs!--> LEARNIG COSTS (i need to know how to use a pc to exploit it) localized ​= means the effect of the diffusion are specific to the characteristics of the context in which it happens. ACTORS users ​= are classified according to their ability to exploit new technologies leaders​= the first to approach to technology and therefore better exploit the opportunities of technology followers​ = following the leaders→ they try to imitate the leaders. thanx to imitation they try to catch up but still cannot. laggers​= lagging behind. they are in a declining position, in term of technological development and growth. →​ laggers are not producers of icts but adopters. CONTEXTUAL EXAMPLES​→ USA = leaders, scandinavian countries = followers, EU= laggers NB ​No determinism but ​huge scope for policies​: technology is something that must be object of study of economic and technological policies→ we need to create policies that support technological growth 7.3.17 ​slide +​ ​appunti di Eleonora Mollo e Claudia Rioli In 1971 the first microprocessors were produced in the Silicon Valley by Texas Instruments and Intel →​ the ​digital revolution ​thus began. 4 basic macro-factors for icts development and diffusion 1) Transformations in the productive specialisation​ of main advanced economies paralleled by the decline in manufacturing productivity 2) Progressive​ ​growth of the​ ​service economy (tertiarization)​ in main advanced economies 3) Growing technological opportunities ​stemming from technological convergence and integration of diverse technologies 4) Innovations in financial institutions*​ and governance mechanisms specific to new high-tech firms→ *Innovation is always uncertain: ​we don’t know if people like a new product or not. → Innovation in financial institution means that we need ​new kinds of financial institutions​ (traditional bank system is not suitable) → 2 innovative financial institutions: a) venture capitalism: ​funds come from venture capital (private investors called venture capitalists) who financiate innovative projects with high risk’s rates by diversifying the investment’s portfolio. In this way, although the majority of funded high-tech firms will fail, the few ones succeeding will compensate the loss. (e.g. 70% fail, but 30% compensate the loss). b) NASDAQ: ​an American stock exchange electronic market .specifically related to new high tech firms. The decline of U.S comparative advantage and international competition (The reaction to the decline is the introduction of innovation→ creation of new sectors and specialization in ICTs.) Since the 60s​ we assist to​: 1) The progressive ​international diffusion of mass production technologies 2) The intensive ​adoption of more efficient technologies 3) Economies of learning and imitation of innovation​ (other countries started imitating the U.S→ The ​fordist system, ​born in the U.S during the 20th century, diffused at an international level). Those 3 factors favoured the​ ​international competition and position of new industrialized countries and new competitors 1) Technological opportunities related to innovations and improvements in chemicals, pharmaceuticals, industrial machinery industry, automotive were​ slowly exhausting.​ Since these capital intensive sectors were the main drivers of US growth at that time, once they started diminishing the U.S economic position weakened slow decline of U.S comparative advantage Since late ’70s ​we observe​: 1) the Catching up of European countries and Japan, and in particular aggressive export strategies of Japanese firms 2) Supply side shocks: explosion of oil prices in 1973-74, explosion of energy prices and underutilization of productive capacity in capital intensive firms Failure-induced radical technological change The loosening of the U.S competitive advantage stimulates a creative response (Schumpeter, 1928) ​of a number of organizations ​that explore technological complementarities and exploit institutional characteristics of the US economic system New technological system The institutional characteristics of the U.S system 1) Important endowment of scientific and technological resources of the public US research and academic system (big science model, think about the birth of arpanet) 2) Growth in the supply of ​high skilled labour 3) Tradition of strong partnership and collaboration between public and private research 4) Systematic accumulation of R&D investments and R&D capabilities in large firms 5) Evolution and growing wealth in US internal final demand toward new goods and services 6) Unparalleled development of financial institutions devoted to innovation: venture capitalism and financial markets Technological and structural change ISOQUANTS​→ ​ ​ ​Y = ƒ (K,L) → ​lower isoquants ​represent ​older technologies​, being able to obtain lower level of output. → ​higher isoquants ​represent ​new technologies along the isoquants the level of output is always the same​→ along the line, we have n combinations of K,L giving the same amount of output = same amount of output given by different amounts of k,l Representation of isoquants and isocosts the model of isocosts/isoquants gives us a more specific view of the production model: the latter doesn’t give us info about amounts of w, r. → represents the situation for a unique technology → comparison between a steeper and a flatter isocost line: point B : countries with flatter isocost line = low k, high L→ EU point A: countries with a steeper line = high k, lower l→ US 13.3 17 models of innovation: knowledge as a private, vs public good The traditional arrovian model (publicity)​(Arrovian stands for Arrow, 1962) Arrow never talked directly about innovation. He was ​interested in the social and economic effect of production and diffusion of knowledge. mid 70s→ he wrote many papers knowledge is seen as a peculiar good→ there are two different approaches to knowledge, based on different incentives: ​private incentive ​to generate knowledge differs from ​social incentives​ to diffuse knowledge. A) PRIVATE PRODUCTION OF KNOWLEDGE​: a kind of knowledge which is privately produced needs some priv. incentives. ex property rights (pharmaceutical firm and patent for drugs reproduction). B) SOCIAL PRODUCTION OF KNOWLEDGE:​ a socially produced knowledge needs social incentives to diffuse. referring to the previous example from a social pov: i want the new drug to be available for everybody. The problem is that ​private incentives stop social diffusion mechanisms​→ if I put a patent on a drug, other firms cannot freely access the knowledge behind the dug production (they have to pay→ not all of them have the capacity to pay). →​ to allow social diffusion, firms must set a ​low price on knowledge. There is a mismatch in the two different pov and goals of private vs public/social actors. → ​Arrow ​defines this mismatch: ​“the tragedy of knowledge commons” If i want to stimulate the production of knowledge privately (through the market) i will have an under-diffusion of knowledge and of innovation→ I will have a world in which ​knowledge and innovation belong to a few people​, that is, to a rich niche of the population→​ to whom can pay for it. On the contrary, if I boost social production, i will have an under-production of knowledge/innovation because i don’t have big incentive (private incentives are more consistent than public ones). the idea beyond Arrow’s statement is: ​if i want to apply market mechanism to the production of innovation and knowledge, i will fail (market failure) to the tragedy of knowledge commons → ​ i cannot have both public and private knowledge production→ they mismatch​, and at the same time - if i boost private production→ i will have under diffusion - if i boost social production→ i will have under production Arrow tries to solve this problem​: the only solution is to produce knowledge PUBLICALLY​. → ​IT MUST BE BOOSTED BY PUB. INSTITUTIONS (GOV, UNIVERSITIES, RESEARCH CENTRES ETC..)​ it must have public incentives. this is the only way ​to obtain the socially desirable level of both diffusion and production. this is the basis of the arrovian model: Arrow: the linear top down model Public knowledge characteristics: - non appropriability​ (it can’t be appropriated, no right to apply a license) - non excludability ​(everyone can access it→ can’t put an exclusive price) - non predictability ​(innovation can’t be predicted) 15.3.17 The transaction cost approach Two solutions to the problem: the firms and the market. I produce the whole product internally (all its components) or acquire it from external. knowledge as a private good (second approach, different from arrovian approach), based on the transaction approach Ti​ = technology function, where IK​ is internal knowledge, and​ ​EK​ is external knowledge 2 boundaries: upper bound /lower bound ​related to the fact that inputs (gamma 1 and gamma2) are seen as complementaries. → according to this specification, ​increasing returns are possible when the two inputs are used together. Firms cannot rely only upon one of the inputs (external/internal knowledge aka gamma 1,2), ​they cannot substitute one to the other Ci​ = cost equation. C = aIK - bEK ​→ total costs are given by the sum of internal and external knowledge (just like in input function C = aK+bL where total costs are given by costs of capital and labor). we can introduce isocosts and isoquants to this model: → the ​inclination of the isocost​ is given by the ​ratio between the unit cost for IK (A) and the unit cost for EK (B). (JUST LIKE IN PRODUCTION MODEL→ isocost is given by the ratio between the unit cost of labor and the unit cost of capital). WITH A STEEPER ISOCOST, THE COSTLY INPUT IS EXTERNAL KNOWLEDGE​ → in fact,​ in the point A ​(when function T crosses the isocost line giving the upper bound) ​the firm is using a small amount of external knowledge and a big amount of internal knowledge viceversa: ​WITH A FLATTER ISOCOST, THE COSTLY INPUT IS INTERNAL KNOWLEDGE​→ the relative costs of accessing external knowledge resources is cheaper, and accessing internal knowledge is costly→ in the point B, where technological function crosses lower bound and the isocost line, ​the firm will us a great amount of external knowledge, while a small amount of internal knowledge will be used. Slide 56 → organizational choices of many famous firms in ict market→ POINT A = represents apple choice, while POINT B can describe organizational choice of many firms (ibm, acer, lenovo) → ​it’s more convenient to buy the components on the market rather than produce all of them and assemblare them. Approach A: Knowledge as a ​private good why does apple choose the organizational choice A? they internalise the process of knowledge production, in order to guarantee a high quality standard for their products. For apple it is more convenient to invest internally​, in research, design ecc. (if they lose quality level, they’re screwed) → to internally manage all the knowledge production process means to better control the total quality standards, at any point of the innovation process. the way in which knowledge is produced as a standard good→ Slide 59 Approach B: Knowledge as a ​collective good hybrid solutions between pure firms and pure market the ICTS ecosystem (Fransman, book) → how do different players of the market interact? → they interact thanks to ​long term collaboration​→ they do not simply buy resources on the market but also​ share their resources​. → I can try to cover fixed costs not increasing the quantity of a single kind of good but producing different version of the good → i differentiate ● economies of scale are important in icts and information’s industries → I try to reach economies of scale increasing the varieties of a product, increasing the mrkt segments to which i can sell my differentiate product Chris anderson​’s theory:​ “the long tail market”​→ also small firms can achieve economies of scale, because marginal costs are not increasing but they tend to zero. I multiply the number of consumers, multiplying the versions of my product. i can reach consumers who would have never bought my product if ididnt differentiate it (i.e a non fan of stephen king would buy a book for 15 $ but he/she could buy it in ebook version for 4/6$) BUNDLING​ ​= a peculiar form of versioning → “​attaching more products within the same package at a unique premium price but lower than the sum of single prices.” bundling is ​different from tying​→ two bundled products cannot be sold but together. Economic rationale for bundling strategies (aka why bundling, economically speaking?)​: economies of scope on the supply side​→ in distribution→ ex vodafone selling mobile phones+internet service through one single delivery, one shop /one distribution (microsoft→ selling both windows and explorer) high set-up costs and economies of scale in production ​(fastweb and voip, internet services) marginal costs are low or close to zero​→ i.e. premium subscription of ny times→ i can have both offline and online version→ for the firm, the price of production is the same. customers benefits from an optional value​→ office and excel consumers appreciate the resulting simplification of the purchase decision → when two or more product are bundled together (office/apple..) and they benefit from the joint performances of the combined product (economies of scope in consumption→ apple. 21.3.17 ​slide + appunti di Simona Panella Bundling, switching costs and consumers’ lock-in Bundling is a way to ​enforce consumers to acquire a range of complementary (compatible) ​products​: e.g., Apple computers and iTunes, iPhones, iPods Users that buy bundles of complementary products increase the specificity of their tangible assets, i.e. investments in durable goods, and intangible assets, i.e. skills and technical abilities The costs of changing (switching) from one technology to a rival one are higher when the specificity of tangible and intangible assets is also high Switching costs are extremely frequent and common in ICT markets When consumers are facing high switching costs, they are locked-in into a technology​ that can be no more their preferred choice (e.g., obsolete stand-alone value; niche technology; looser in the standard race): e.g., pioneering consumers that bought Sony’s Betamax video recorder; QWERTY keyboards; Blackberry Also producers of hardware and providers of services can face a lock-in: e.g., ADSL vs optical fibre in broadband services Lock-in and timing for switching technologies T1 = old technology T2 = new technology t = time gD = Demand’s growth rate (gD1→ for the old techn | gD2→ for the new tech) A​ is the optimal solution for switching tech→ at time ​t​, the 2 technologies​(T1, T2)​ are exactly the same for the user DAE​ = excessive inertia and high lock-in costs (too late to switch tech.) BAC​ = opportunity costs are high (too soon) 22.3.17 ​slide + appunti di Eleonora Mollo Demand Network Effects​→ the value a subject has being a member of a network, increases more than proportionally​ to the number of members if the network. Supply Network Effects​→ the value for consumers depends also on ​complementary goods​→​ standards​ and dominants designs. A network is a system of ​complementary nodes and links ​(links can be virtual though) → this implies that resources (technology, data..) and ​rules ​are shared. A network ,that is, a community of different and numerous actors, needs common rules to function properly.