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Digital Networks
Digital Networks
Digital Networks
Digital Networks
Digital Networks
Digital Networks
Digital Networks
Digital Networks
Digital Networks
Digital Networks
Digital Networks
Digital Networks
Digital Networks
Digital Networks
Digital Networks
Digital Networks
Digital Networks
Digital Networks
Digital Networks
Digital Networks
Digital Networks
Digital Networks
Digital Networks
Digital Networks
Digital Networks
Digital Networks
Digital Networks
Digital Networks
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Digital Networks

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Week 2 lecture in digital technologies class, com495.

Week 2 lecture in digital technologies class, com495.

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  • Non-rival - a good that can be used by more than one person at the same time Non-excludable – it is not possible for the “owner” to exclude others from consuming it
  • Links to PPTs on externalities
  • http://punkrockor.wordpress.com/2011/07/27/five-nifty-social-networks/
  • Where we ended Monday night!
  • Transcript

    • 1. Digital Networks Kathy E. Gill 11 January 2012
    • 2. What Is An Info Economy? <ul><li>“ An economy based on the exchange of knowledge information and services rather than physical goods and services.” Australian Gov ’ t , Dept. Finance and Administration, 2001. </li></ul>
    • 3. What is Information? <ul><li>In the context of this class, anything that can be converted to bits, ie, digitized, is an information good </li></ul><ul><ul><li>Entertainment </li></ul></ul><ul><ul><li>News </li></ul></ul><ul><ul><li>Business Info </li></ul></ul><ul><ul><li>Software </li></ul></ul>
    • 4. What is Information Technology? <ul><li>Telecommunications, computers, software </li></ul><ul><ul><li>Communication: E-mail, IM, TheWeb </li></ul></ul><ul><ul><li>Networks: Extranet, Intranet, Internet, LAN, WAN </li></ul></ul><ul><ul><li>Software: Expert systems, Enterprise Resource Planning, Query and Reporting, Data Mining </li></ul></ul><ul><ul><li>Networks: T1, T3, Wireless, WiMax </li></ul></ul><ul><ul><li>Protocols: HTTP, FTP, VoIP, GoogleWave? </li></ul></ul>
    • 5. Competing Theories <ul><li>Technology optimists </li></ul><ul><ul><li>A new society without pollution; time for creative work; participatory democracy; perfect markets… </li></ul></ul><ul><li>Technology pessimists </li></ul><ul><ul><li>No new society but an increase the divide between rich and poor; greater control over individuals; erosion of privacy… </li></ul></ul><ul><li>Technology + economics +society </li></ul>
    • 6. Summary <ul><li>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. </li></ul>
    • 7. What Is Economics? <ul><li>Economics is the study of how people (and institutions) act in a society with limited resources (iow, scarcity) </li></ul><ul><ul><li>The choices are more diverse than simply $$ - it ’s also time, work, savings </li></ul></ul><ul><ul><li>Driving principle: that people optimize the “utility” (satisfaction) of goods and services consumed - that we are rational </li></ul></ul>
    • 8. Supply-Demand
    • 9. Economics of Information <ul><li>Costly to produce </li></ul><ul><li>Inexpensive to re-produce </li></ul><ul><li>Economist-speak: </li></ul><ul><ul><li>High fixed costs, low marginal costs </li></ul></ul>
    • 10. Economics of Attention <ul><li>Info overload: “a wealth of information creates a poverty of attention” (Herbert Simon) </li></ul>
    • 11. Types of Goods (1/2) <ul><li>Non-rival - a good that can be used by more than one person at the same time (an idea) </li></ul><ul><li>Non-excludable - it is not possible for the “owner” to exclude others from consuming this good (non-patented idea) </li></ul>
    • 12. Types of Goods (2/2) Rival Non-Rival Excludable <ul><li>Most consumer goods </li></ul><ul><li>Private land </li></ul><ul><li>Services </li></ul><ul><li>Single license software </li></ul><ul><li>Trade secrets </li></ul><ul><li>Multi-license software </li></ul><ul><li>Patents </li></ul><ul><li>Subscription web sites </li></ul>Non-Excludable <ul><li>Public land </li></ul><ul><li>Most roads </li></ul><ul><li>Water - rivers, lakes </li></ul><ul><li>“ Public Goods” </li></ul><ul><li>Basic research </li></ul><ul><li>Defense, police, firemen </li></ul><ul><li>Lighthouse </li></ul><ul><li>“ Open” websites </li></ul><ul><li>TV (not cable!) </li></ul>
    • 13. Excludability and Information <ul><li>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. </li></ul>
    • 14. Types of Excludability (traditional) <ul><li>Trade Secrets (Coca Cola) </li></ul><ul><li>Patents (Amazon One-Click) </li></ul><ul><li>Copyright </li></ul><ul><li>Will people create knowledge if they can ’t charge for it? WB says No. Open source movement says Yes. </li></ul>
    • 15. Digital Excludability (transitional?) <ul><li>DRM </li></ul><ul><ul><li>iTunes, Amazon </li></ul></ul><ul><ul><li>Difference in video and music </li></ul></ul><ul><li>Subscriptions </li></ul><ul><ul><li>RealNetworks and Napster, The Economist and the WSJ </li></ul></ul><ul><li>Lawsuits </li></ul>
    • 16. An Experience Good <ul><li>A good is an “experience” good if a consumer has to experience it to value it </li></ul><ul><ul><li>Various biz strategies encourage “try before you buy” </li></ul></ul>
    • 17. Complementary Goods <ul><li>CDs + CD Player </li></ul><ul><li>Websites “optimized” for a specific browser </li></ul><ul><li>Bluetooth headset & cellphone </li></ul><ul><li>Issues: network effects & lock-in </li></ul>
    • 18. NETWORK EFFECTS (1/2) <ul><li>Static analysis: </li></ul><ul><ul><li>One person ’s decision to adopt a new piece of software (or other technology) has no effect on someone else’s welfare or decision to adopt </li></ul></ul><ul><ul><li>Assumes no network externality </li></ul></ul>
    • 19. Network effects (2/2) <ul><li>Dynamic analysis: </li></ul><ul><ul><li>The value of the software (or technology) depends upon the decisions of others (interoperability, for example) </li></ul></ul><ul><ul><li>Assumes there is a network externality </li></ul></ul>
    • 20.  
    • 21. Locked In! <ul><li>Consumers may be locked into a network because of “cost of exit” (switching) </li></ul><ul><ul><li>Contracts (cell phone 24-month policies) </li></ul></ul><ul><ul><li>Training (learn a new system – ugh) </li></ul></ul><ul><ul><li>Data conversion (from Word to Word Perfect, for example) </li></ul></ul><ul><ul><li>Search cost (finding the new product) </li></ul></ul><ul><ul><li>Loyalty cost (frequent flyer programs, “minutes carry-over”) </li></ul></ul>
    • 22. Tipping <ul><li>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 </li></ul>
    • 23. EXAMPLES <ul><li>AM v FM radio </li></ul><ul><li>Beta v VHS </li></ul><ul><li>Mac v Windows </li></ul><ul><li>QWERTY v DVORAK </li></ul><ul><li>BlueRay v HD-DVD </li></ul><ul><li>GSM v CDMA </li></ul>
    • 24. Conclusion (1/2) <ul><li>Economy is increasingly reliant on information technologies and information </li></ul><ul><li>Firms in this sector have a different cost structure than traditional goods/sectors like ag or manufacturing </li></ul>
    • 25. Conclusion (2/2) <ul><li>The products in this sector have characteristics of a public good -- the antithesis of a scarce, excludable good </li></ul><ul><li>Thus information technology is disruptive, economically and socially </li></ul>
    • 26. Resources (1/3) <ul><li>The Inkjet Printer, from The Economist. (2002) http://emlab.berkeley.edu/users/bhhall/e124inkjetprinter.html </li></ul><ul><li>The Invention of Email, from Pretext Magazine (1998) http://emlab.berkeley.edu/users/bhhall/e124emailinvention.pdf </li></ul><ul><li>Hal R. Varian , “High Technology Industries and Market Structure” (2001) http://www.sims.berkeley.edu/~hal/Papers/structure/structure.html </li></ul><ul><li>Science and Engineering Indicators (2002) National Science Board. http://www.nsf.gov/sbe/srs/seind02/start.htm </li></ul>
    • 27. Resources (2/3) <ul><li>Michael L. Katz and Carl Shapiro. “Systems Competition and Network Effects,” Journal of Economic Perspectives , Vol 8 No 2 (1994) </li></ul><ul><li>Nicholas Economides. “The Economics of Networks,” International Journal of Industrial Organization, October (1996) http://www.stern.nyu.edu/networks/top.html </li></ul><ul><li>S.J. Liebowitz and Stephen E. Margolis. “Network Externality: An Uncommon Tragedy,” Journal of Economic Perspectives , Vol 8 No 2 (1994) </li></ul>
    • 28. Resources (3/3) <ul><li>Timothy F. Bresnahan. “The Economics of the Microsoft Case.” http://www.stanford.edu/~tbres/Microsoft/The_Economics_of_The_Microsoft_Case.pdf </li></ul><ul><li>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 </li></ul><ul><li>Tore Nilssen and Lars Sørgard. “TV Advertising, Programming Investments, and Product-Market Oligopoly” http://www.nhh.no/sam/res-publ/2000/dp06.pdf </li></ul>

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