Information, Markets and Society Kathy E. Gill 30 June
2008
30 June 2008 COM597 - Gill Overview What is an Info Economy?
Economics 101 Types of goods Network effects Examples and
Discussion
30 June 2008 COM597 - Gill But first . This instrument can
teach, it can illuminate; yes, and it can even inspire. But it can
do so only to the extent that humans are determined to use it to
those ends. Otherwise it is merely wires and lights in a box. There
is a great and perhaps decisive battle to be fought against
ignorance, intolerance and indifference. This weapon of television
could be useful. Edward R. Murrow, 1958, RTNDA Convention
30 June 2008 COM597 - Gill What Is An Info Economy? An economy
based on the exchange of knowledge information and services rather
than physical goods and services. Australian Govt, Dept. Finance
and Administration, 2001.
30 June 2008 COM597 - Gill History of Term, Concept 1963: Tadeo
Umesao, Kyoto University, forecast an information industry 1973:
Daniel Bell, Harvard, described a knowledge-based post-industrial
economy 1981: Frederick Williams, UT Austin, said the communication
revolution had arrived and expounded on the knowledge worker The
Information Society, A Retrospective View. Dordick and Wang.
1993.
30 June 2008 COM597 - Gill Bell Post-industrial society will be
organized around knowledge for the purpose of social control and
the directing of innovation and change The transformation is
industrial to service Anticipated tension between high-tech,
intellectual work and nonprofessionals
30 June 2008 COM597 - Gill Digital Expectations Personal
anecdote about trying to read journal article, Blackwell Publishing
(UK)
30 June 2008 COM597 - Gill Today (almost!) 1997: Bill Gates
traced the computer from mainframe to personal to network. [W]e
have the most powerful communications medium of all time And the
information age is changing business in a fundamental way [as well
as] the way we entertain and [educate] ourselves. Information
Technology, Corporate Productivity and the New Economy, p 4
30 June 2008 COM597 - Gill No Standard Nomenclature Info
Economy, Post-Industrial Economy, New Economy? One definition: the
new economy is an integration of free-market economies,
globalization and information technology Information Technology,
Corporate Productivity and the New Economy, p 9
30 June 2008 COM597 - Gill What is Information? In the context
of this class, anything that can be converted to bits, ie,
digitized, is an information good Entertainment News Business Info
Software
30 June 2008 COM597 - Gill What is Information Technology?
Telecommunications, computers, software Communication: E-mail, IM,
TheWeb Networks: Extranet, Intranet, Internet, LAN, WAN Software:
Expert systems, Enterprise Resource Planning, Query and Reporting,
Data Mining Networks: T1, T3, Wireless Protocols: HTTP, FTP,
VoIP
30 June 2008 COM597 - Gill Societal Factors Demand for IT:
Productivity? Effect of Growth: Collapse of space and time
Reduction of scarcity
30 June 2008 COM597 - Gill Competing Theories Technology
optimists A new society without pollution; time for creative work;
participatory democracy; perfect markets Technology pessimists No
new society but an increase the divide between rich and poor;
greater control over individuals; erosion of privacy Technology +
economics +society
30 June 2008 COM597 - Gill Summary Use whatever label you wish
the makeup of our economy has changed. Information as a good and
information technologies have replaced goods made of atoms and
technologies resting on muscle.
30 June 2008 COM597 - Gill Economics 101 Supply & Demand
Market Structure Types of Goods Network Effects
Examples/Discussion
30 June 2008 COM597 - Gill What Is Economics? Economics is the
study of how people (and institutions) act in a society with
limited resources (iow, scarcity) The choices are more diverse than
simply $$ - its also time, work, savings Driving principle: that
people optimize the utility (satisfaction) of goods and services
consumed - that we are rational
30 June 2008 COM597 - Gill John Kenneth Galbraith Faced with
the choice between changing ones mind or proving that there is no
need to do so, almost everybody gets busy on the proof.
30 June 2008 COM597 - Gill Kuhnen & Knutson (2005) Found
that two brain areas known to be part of emotional processing (the
limbic system) can help predict financial choices
30 June 2008 COM597 - Gill Supply and Demand Most widely used
economic model Describes how consumers and producers interact to
determine the price of a good and the quantity that will be
produced/sold
30 June 2008 COM597 - Gill Demand Curve Shows the quantity of a
good (or service) that consumers are willing to buy at different
prices Assumes all other things remain constant (static) Law of
Demand: curve slopes downward (P on the vertical axis)
30 June 2008 COM597 - Gill Supply Curve Shows the quantity of a
good (or service) that businesses are willing to sell at each price
Assumes all other things remain constant (static) No law of
supply
30 June 2008 COM597 - Gill Supply-Demand
30 June 2008 COM597 - Gill Competitive Markets (perfect
competition) No buyer or seller can influence price Products and
services are identical No barriers to entry/exit Everyone
(consumer, worker, producer) has access to perfect information on
prices and costs
30 June 2008 COM597 - Gill Market Structure Classic Free
(Competitive) Market Low fixed costs Marginal cost = price marginal
cost is the cost of producing one additional unit The Natural
Monopoly Large fixed costs Small/zero marginal costs
30 June 2008 COM597 - Gill Economics of Information Costly to
produce Inexpensive to re-produce Economist-speak: High fixed
costs, low marginal costs
30 June 2008 COM597 - Gill Economics of Attention Info
overload: a wealth of information creates a poverty of attention
(Herbert Simon)
30 June 2008 COM597 - Gill Types of Goods (1/2) Non-rival - a
good that can be used by more than one person at the same time (an
idea) Non-excludable - it is not possible for the owner to exclude
others from consuming this good (non-patented idea)
30 June 2008 COM597 - Gill Types of Goods (2/2) Rival Non-Rival
Excludable Most consumer goods Private land Services Single license
software Trade secrets Multi-license software Patents Subscription
web sites Non- Excludable Public land Most roads Water - rivers,
lakes Public Goods Basic research Defense, police, firemen
Lighthouse Open websites TV (not cable!)
30 June 2008 COM597 - Gill Excludability and Information From
the World Bank: Assume someone produces a valuable theorem, but it
cannot be kept secret -- it must be made immediately available.
Because anyone can immediately use it, there is no way for an
individual to profit from creating it.
30 June 2008 COM597 - Gill Types of Excludability (traditional)
Trade Secrets (Coca Cola) Patents (Amazon One-Click) Copyright Will
people create knowledge if they cant charge for it? WB says No.
Open source movement says Yes.
30 June 2008 COM597 - Gill Digital Excludability
(transitional?) DRM iTunes Subscriptions RealNetworks and Napster,
The Economist and the WSJ Lawsuits
30 June 2008 COM597 - Gill An Experience Good A good is an
experience good if a consumer has to experience it to value it
Various biz strategies encourage try before you buy
30 June 2008 COM597 - Gill Complementary Goods CDs + CD Player
Websites optimized for a specific browser Bluetooth headset &
cellphone Issues: network effects & lock-in
30 June 2008 COM597 - Gill Network effects (1/2) Static
analysis: One persons decision to adopt a new piece of software (or
other technology) has no effect on someone elses welfare or
decision to adopt Assumes no network externality
30 June 2008 COM597 - Gill Network effects (2/2) Dynamic
analysis: The value of the software (or technology) depends upon
the decisions of others (interoperability, for example) Assumes
there is a network externality
30 June 2008 COM597 - Gill Locked In! Consumers may be locked
into a network because of cost of exit (switching) Contracts (cell
phone 24-month policies) Training (learn a new system ugh) Data
conversion (from Word to Word Perfect, for example) Search cost
(finding the new product) Loyalty cost (frequent flyer programs,
minutes carry-over)
30 June 2008 COM597 - Gill Philosophy Varian thinks its a good
thing for firms to figure out how to create a lock as a way to
improve the bottom line I think that, at best, its a short-term
strategy and that it is potentially harmful to society
30 June 2008 COM597 - Gill Tipping As market share increases
for any one product (system, technology), there are increasing
returns (externality) from increasing consumer demand, leading to
dominance by one system
30 June 2008 COM597 - Gill Examples AM v FM radio Beta v VHS
Mac v Windows QWERTY v DVORAK BlueRay v HD-DVD GSM v CDMA
30 June 2008 COM597 - Gill One More Point Time (fixed) + Info
Explosion (overload?) = Increased competition for old media
30 June 2008 COM597 - Gill Conclusion (1/2) Economy is
increasingly reliant on information technologies and information
Firms in this sector have a different cost structure than
traditional goods/sectors like ag or manufacturing
30 June 2008 COM597 - Gill Conclusion (2/2) The products in
this sector have characteristics of a public good -- the antithesis
of a scarce, excludable good Thus information technology is
disruptive, economically and socially
30 June 2008 COM597 - Gill For Wednesday Post to your blog .
Reflection on this weeks readings AND reflection on your learning
goals for the quarter. Categorize both posts Reflection
30 June 2008 COM597 - Gill Next Assignments 3 July: post your
scholarly article and a reflection on the assigned article 8 July:
post your book review 10 July: post a reflection on someone elses
scholarly article 10 July: face-to-face meeting here
30 June 2008 COM597 - Gill Lab Demo tagging Set Up Wordpress
Blogs
30 June 2008 COM597 - Gill Resources (1/3) The Inkjet Printer,
from The Economist. (2002) http:
//emlab.berkeley.edu/users/bhhall/e124inkjetprinter.html The
Invention of Email, from Pretext Magazine (1998)
http://emlab.berkeley.edu/users/bhhall/e124emailinvention.pdf Hal
R. Varian , High Technology Industries and Market Structure (2001)
http://www.sims.berkeley.edu/~hal/Papers/structure/structure.html
Science and Engineering Indicators (2002) National Science Board.
http://www.nsf.gov/sbe/srs/seind02/start.htm
30 June 2008 COM597 - Gill Resources (2/3) Michael L. Katz and
Carl Shapiro. Systems Competition and Network Effects, Journal of
Economic Perspectives, Vol 8 No 2 (1994) Nicholas Economides. The
Economics of Networks, International Journal of Industrial
Organization, October (1996)
http://www.stern.nyu.edu/networks/top.html S.J. Liebowitz and
Stephen E. Margolis. Network Externality: An Uncommon Tragedy,
Journal of Economic Perspectives, Vol 8 No 2 (1994)
30 June 2008 COM597 - Gill Resources (3/3) Timothy F.
Bresnahan. The Economics of the Microsoft Case.
http://www.stanford.edu/~tbres/Microsoft/The_Economics_of_The_Microsoft_Case.pdf
Stephen Martin. The Nature of Innovation Market Failure and the
Design of Public Support for Private Innovation
http://www.sam.sdu.dk/undervis/92172.E03/martin_scott.pdf Tore
Nilssen and Lars Srgard. TV Advertising, Programming Investments,
and Product-Market Oligopoly
http://www.nhh.no/sam/res-publ/2000/dp06.pdf