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Markets, Computers and Society

Markets, Computers and Society. Kathy E. Gill 8 February 2008. Overview. Economics! Types of goods Network effects Examples of open source software and networks. But first ….

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Markets, Computers and Society

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  1. Markets, Computers and Society Kathy E. Gill 8 February 2008

  2. Overview • Economics! • Types of goods • Network effects • Examples of open source software and networks

  3. 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

  4. 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

  5. Supply-Demand

  6. Demand Curve • Shows the quantity of a good (or service) that consumers are willing to buy at each price • Assumes “all other things” remain constant (static) • Law of Demand: curve slopes “downward” (P on the vertical axis)

  7. 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”

  8. 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)

  9. Types of Goods(2/2)

  10. Supply of innovation • Dependent on • State of scientific/technological knowledge (technological opportunity) • Cost, availability of inputs (knowledge workers, equipment) • Ability to capture increased profits arising from the innovation (appropriability)

  11. Demand for innovation • Dependent on • Cost reduction (process innovation) • Consumer benefit from new product (product innovation) • Consumer benefit from improvement in existing product (incremental product innovation)

  12. Network effects (1/2) • Static analysis: • 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 • Assumes no network externality

  13. 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

  14. 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”)

  15. 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

  16. Examples • AM v FM radio • Beta v VHS • Mac v Windows • QWERTY v DVORAK • BlueRay v HD-DVD

  17. How Does Open Source Fit? • Assumes many minds greater than a few • Assumes transparency leads to higher quality • Enabled by virtual computer network

  18. Examples (some conceptual) • ARPANET development of standards for telecom protocols • 1998: Netscape releases Navigator source code • Apache (web server) • Firefox, Thunderbird, Mozilla • Wikipedia • Digg, Slashdot, The Blogosphere

  19. Summary • Digital media change the economic landscape because economy theory is based on scarcity • Digital goods are more like non-rival, non-excludable goods than industrial age goods

  20. Discussion • Pros and cons of open source software, philosophy on society as a whole? • How can businesses engage the market on a more “human” level? • What are consequences of a post-scarcity era? • If there is resistance to embracing the open source software movement, where might it originate? From companies wanting to protect their proprietary information? From programmers concerned about earnings potential? Somewhere else? • What is the impact of business models like Amazon, Netflix & Rhapsody on bricks-and-mortar stores like Borders, Blockbuster & Tower Records?

  21. Discussion Leaders - For Wed • Spread around the room, find a computer. • Gather in groups of 3-4 + leader • Leaders share info – engage in discussion • Groups “move” but leaders stay seated

  22. Questions (3x5 cards) • What insights did you make today? • What (if any) learning or skills goals do you have for the rest of the quarter? • Thinking back to week 1: • What has been a highlight to you and why? • What would you change (about the class, yourself, etc) if we could “do over” and why?

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