nep-ict New Economics Papers
on Information and Communication Technologies
Issue of 2012‒10‒27
three papers chosen by
Walter Frisch
University Vienna

  1. The Evolution of Control in the Digital Economy By F. Landini
  2. Do Online Marketplaces Become More Efficient Over Time? By Andrey Fradkin
  3. e-Book Platform Competition in the Presence of Two-Sided Network Externalities By Yabing Jiang

  1. By: F. Landini
    Abstract: Control over digital transactions has steadily risen in recent years, to an extent that puts into question the Internet’s traditional openness. In order to investigate the origins and effects of such change the paper formally model the historical evolution of digital control. In the model, the economy-wide features of the digital space emerge as a result of endogenous differences in culture (users’ preferences including motivation) and technology (platform designs). The model shows that: a) in the longrun there exist two stable cultural-technological equilibria in the digital economy: one with intrinsically motivated users and low control; and the other with purely extrinsically motivated users and high control; b) under a closed economy - i.e. before the opening of the network to commerce, the initial emergence of a low-control-intrinsic-motivation equilibrium can be explained by the specific set of norms and values that formed the early culture of the networked environment; and c) the opening of the network to commerce can indeed cause a transition to a high-control-extrinsicmotivation equilibrium, even if the latter is Pareto inferior. Although it is too early to say whether such a transition is actually taking place, these results call for a great deal of attention in evaluating policy proposals on Internet regulation.
    Keywords: : Internet control, Internet regulation, motivation, on-line law enforcement, technology, endogenous preferences, evolutionary games
    JEL: C73 D02 K00 L23
    Date: 2012
  2. By: Andrey Fradkin (Department of Economics, Stanford University)
    Abstract: An increasing proportion of transactions in two-sided markets are being mediated by online platforms. Presumably, agents choose to use online platforms because they have a lower transaction cost technology compared to alternatives. I use data from a growing online platform that matches travelers and hosts to study matching and transaction costs on online platforms. I show that the matching probability for guests has increased by 18% over a span of two years on the platform. I then show that the increase in efficiency holds even when controlling for the search intensity of guests, the change in the composition of transactions and aggregate market conditions at the time of search I demonstrate that guests are elastic with respect to the time it takes to make a transaction. I then investigate one potential reason for why guests are more successful over time: a decrease in the transaction costs required to book. I show that the time to book and the amount of communication required to book on the platform are falling over time. I then consider three possible explanation hypotheses for the reduction in required transaction costs: learning, reputation building and platform policy. I show that all three are likely important for explain the increased efficiency over time.
    Keywords: Two-Sided Platforms, Matching, Search, Marketplaces, Frictions, Transaction Costs, Learning, Reputation, Internet Economics
    JEL: L1 L2 J6 D82 D83 D23 O31 O33
    Date: 2012–10
  3. By: Yabing Jiang (Lutgert College of Business, Florida Gulf Coast University)
    Abstract: The success of the Kindle e-book platform and the increased popularity of e-books among members of the reading community have attracted extensive interest in the high-tech industry. New platform providers are jumping in the market to compete for device and e-book sales. In this paper, we model the direct competition in the e-book platform market through a two-sided network externality model. We show that publishers can influence consumers’ e-book platform adoption decisions and the total e-book sales by strategically deciding the size of contents available on each platform.
    Keywords: analytical modeling, e-book technology, network externality, platform competition, product differentiation, two-sided market
    JEL: D43 D62 L11 L13 L82 M15
    Date: 2012–09

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