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Economics of Electronic Commerce

Economics of Electronic Commerce. Chapter 3: Internet Infrastructure and Pricing. Infrastructure. Random House Webster ’ s Unabridged Dictionary : The basic, underlying framework or features of a system or organization

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Economics of Electronic Commerce

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  1. Economics of Electronic Commerce Chapter 3: Internet Infrastructure and Pricing

  2. Infrastructure • Random House Webster’s Unabridged Dictionary: • The basic, underlying framework or features of a system or organization • The fundamental facilities and systems serving a country, city, or area, as transportation, and communication system, power plants, and schools • The American Heritage Encyclopedic Dictionary: • An underlying base of supporting structure • The basic facilities, equipments, services, and installations needed for the growth and functioning of a country, community, operation, or organization

  3. Examples of Infrastructure • Language • Education system • Currency • Judicial system • Institutional structure • Industrial organization • Transportation • Electricity/Power utility • Telecommunication • Cable TV • Cellular Network • Satellite network • Personal Computer • Consumer Electronics • Information Appliance • Set-box

  4. The patterns of infrastructure • Top-down spreading • Coordinative adoption behavior • Collective utility • Large scale investment • Inter-connectedness and compatibility • High negotiation cost • Centralized planning • Announcement of de jure protocol • Bottom-up aggregation • Adoption mostly by self-decision • Stand-alone usage • Small-sized investment • Inter-operability • Trojan-like penetration • Market-oriented competition • Dominance by de facto standard

  5. Internet pipelines

  6. Traffic control on the Internet • Packet switching • IP addresses • Transmission Control Protocol, UDP • Unicast, broadcast, multicast

  7. The Key Value Layers of Telecommunication Infrastructure • Five value layers • Content—Disney, Wall Street Journal • Packaging—AOL, Time Warner, Disney, HBO, MTV • Transmission—AT&T, MCI, NYNEX, TCI • Manipulation—Microsoft, AT&T, IBM, SUN • Terminal—Apple, Sony, Sharp, Motorola

  8. The Key Value Layers of Telecommunication Infrastructure

  9. Digital Convergence on Telecommunication Infrastructure

  10. Infrastructure convergence • The backbone • The last 100 feet (the last miles) • Interoperability

  11. The Trends of Telecommunication—Broadband • PSTN (public switched telephone network) • ISDN (integrated services digital network) • T-carrier—T-1, T-3 • xDSL (x-type digital subscriber line) • IDSL, SDSL, ADSL, HDSL, VDSL • CATV • HFC (Hybrid Fiber Coax systems) • Cable Modems • Set-top-box • FTTH (Fiber to the Home)

  12. The Trends of PAN/WLAN • 802.11a—transmission at 5GHz (11Mb~54Mb) • 802.11b(Wi-Fi)—2.4GHz (11Mb) • 802.11g—extension of 802.11b (20Mb~54Mb) • 802.11e—mediation of 802.11x • Bluetooth—2.4GHz (1Mb) • HomeRF—2.4GHz (1.6Mb) • HomeRF2.0—2.4GHz (10Mb) • HyperLan2—European protocol, 5GHz (54Mb) • Wi-Max

  13. The Trends of Satellite Communication • Geosynchronous satellites • Low/medium earth orbit satellites (LEO/MEO) • Iridum—66 LEO satellites by Motorola, 64kbps • Globalstar—48 satellites • Orbcomm—35 satellites • Teledeisc—288LEO satellites by McCaw & Microsoft, 64/2Mbps

  14. The Last 100 Feet • Competition on penetration rate • Server-client mode of microcellular network • Decentralized local wireless loop • The use of existing electrical power lines for high-speed communications to home—converter on the existed infrastructure • The local rooftop community network: free, high-speed radio network access communities • Promise of satellite broadband services

  15. Congestion and infrastructure pricing • World Wide Wait • Tragedy of the commons • Open but free

  16. Effective pricing scheme • Individual rationality • Incentive compatibility

  17. Different pricing schemes • Dynamic optimal pricing • Perfect information and dynamic prices adjusted along about the flow status of Internet highway and users’ demand requests • Static priority pricing—fixed alternatives provided with differentiated prices • Smart-market approach—an auctioning price • Connection-only approach—a contracted fee • Flat-rate approach—a usage-based pricing • Voluntary user declarations—by expost inspection and enforcement

  18. Strategies in the Convergent Era • Approaching to the customer value • What is the new opportunity? • Looking for the common platform • Where is the most popular, standardized, and open-access installed base? • Positioning on the gateway • Which layer is the competing area? • Integration between open platform and critical value for dominating the gateway

  19. Competition between Infrastructures • Institutions • Institutional inducement • Industrial organization • Natural endowments

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