Digital Economics - Report by Martin R. Hilbert - 2001

Contents
Abstract ........................................................................................ 9
Introduction ..................................................................................... 11
I. New basic conditions............................................................ 11
1. Revolution, evolution or hype? .......................................... 11
2. The knowledge society ........................................................ 13
2.1 The positive loop effect of knowledge creation........... 13
2.2 The impact of modern ICT........................................... 15
2.2.1 Computer......................................................... 15
2.2.2 Interconnectivity ............................................. 15
2.3 Production process and evaluation of knowledge........ 17
2.4 The knowledgeable worker.......................................... 18
3. Inter-net-working ................................................................. 19
3.1 Cyberspace ................................................................... 19
3.2 The net of nets.............................................................. 20
3.3 Think network .............................................................. 20
3.4 Information overload.................................................... 21
4. The dynamic of science ....................................................... 22
5. Measuring the digital economy ........................................... 23
5.1 Virtual guesswork ........................................................ 23
5.2 Customer convenience ................................................. 23
5.3 Network effects ............................................................ 24
5.4 The four layers of internet economics ......................... 24
5.5 Definitions.................................................................... 26


II. Structure-conduct-performance................................................................................ 29
1. Performance................................................................................................................ 30
1.1 Digital vs. Non-digital goods ........................................................................... 31
1.1.1 Non-digital goods................................................................................... 31
1.1.2 Digital goods.......................................................................................... 33
1.1.3 Additional value..................................................................................... 33
1.1.4 Tradable- and non-tradable goods ......................................................... 34
1.1.5 Services .................................................................................................. 34
1.1.6 Degree of digitality ................................................................................ 35
1.2 Production and allocative efficiency................................................................ 36
1.3 Progress ............................................................................................................ 37
1.4 The ‘good performance’................................................................................... 38
2. Digital market structure.............................................................................................. 39
2.1 Big is beautiful? .............................................................................................. 39
2.1.1 Economies of scale and economies of scope ......................................... 39
2.1.2 Network effects...................................................................................... 40
2.1.3 Integrational movements........................................................................ 41
2.2 Redefinition of industries and competing groups ............................................ 42
2.2.1 IT-classification ..................................................................................... 42
2.2.2 Product differentiation ........................................................................... 43
2.3 Transparency.................................................................................................... 44
2.3.1 Search engines ....................................................................................... 44
2.3.2 Transparency creating patterns .............................................................. 46
2.4 Barriers of entry ............................................................................................... 46
2.4.1 Entering virtual markets......................................................................... 46
2.4.2 Making business in virtual markets ....................................................... 47
3. Conduct ...................................................................................................................... 49
3.1 Money and payment......................................................................................... 49
3.1.1 Credit cards and checks ......................................................................... 50
3.1.2 Electronic cash....................................................................................... 50
3.1.3 Micropayments ...................................................................................... 51
3.1.4 Smart cards............................................................................................. 51
3.2 Innovation ........................................................................................................ 51
3.2.1 Common understanding ......................................................................... 52
3.2.2 Pace of innovation ................................................................................. 52
3.3 Pricing behavior ............................................................................................... 55
3.3.1 Transparence.......................................................................................... 56
3.3.2 Price discrimination ............................................................................... 57
3.3.3 Online auctions ...................................................................................... 59
3.3.4 Dynamic pricing..................................................................................... 60
3.4 Behavior of firms ............................................................................................. 62
3.4.1 Inner-firm management.......................................................................... 62
3.4.2 Networking between firms..................................................................... 62
3.4.2.1 Efficiency (Marshallian economies, B2B, Collaboration) ..... 62
3.4.2.2 Affiliate programs ................................................................. 64
3.4.2.3 Dis- and re-intermediation...................................................... 66
3.4.2.4 Trust........................................................................................ 69CEPAL - SERIE D



3.5 Product strategy and advertising...................................................................... 69
3.5.1 Production.............................................................................................. 70
3.5.2 One-to-one marketing/CRM.................................................................. 71
3.5.3 The unconditional consumer focus of internet economics.................... 73
3.6 Market equilibrium.......................................................................................... 75
3.6.1 Demand forecasting............................................................................... 75
3.6.2 Built-to-order ......................................................................................... 75
3.6.3 Retrospective adjustment ...................................................................... 76
3.7 Company finance and the growth of firms ...................................................... 76
3.7.1 E-capital................................................................................................. 77
3.7.2 Survival, development and growth? ..................................................... 79
3.8 Legal tactics ..................................................................................................... 81
3.8.1 Model law on electronic data interchange............................................. 81
3.8.2 Security.................................................................................................. 82
3.8.3 Privacy................................................................................................... 83
3.8.4 Intelecual property................................................................................. 83
3.8.5 Standards ............................................................................................... 84
4. Competitive strategy in the digital economy.............................................................. 85
III. Macro .................................................................................................................................... 89
1. Role of organizations ................................................................................................. 90
1.1 Government...................................................................................................... 90
1.1.1 The private sector should lead............................................................... 90
1.1.2 Market failures....................................................................................... 90
1.1.2.1 Maintaining task..................................................................... 91
1.1.2.2 Promoting task (education, extra-efforts) .............................. 92
1.1.3 Supranational moderation...................................................................... 95
1.2 Non-governmental guidance ............................................................................ 96
2. Growth........................................................................................................................ 98
2.1 The productivity paradox................................................................................. 98
2.2 Real cost reduction.......................................................................................... 99
2.3 Direct effects of IT growth ............................................................................ 101
2.4 Indirect effects of IT-growth.......................................................................... 102
3. Digital divide and the catch up ................................................................................ 103
3.1 A natural "sideeffect" of development? ........................................................ 103
3.2 International divide ........................................................................................ 104
3.3 The catch up................................................................................................... 108
3.3.1 The big divider..................................................................................... 108
3.3.2 The big equalizer ................................................................................. 109
3.4 Domestic divide ............................................................................................. 111
3.4.1 Households .......................................................................................... 112
3.4.2 Business ............................................................................................... 114
4. Labour markets......................................................................................................... 114
4.1 Employment demand ..................................................................................... 115
4.2 Skill requirements .......................................................................................... 117
4.3 Geographical requirements ............................................................................ 118
4.4 Wage differentials.......................................................................................... 120
IV. Final Remarks........................................................................................................ 123
Bibliography................................................................................................................................. 125
Serie de desarrollo productivo: issues published ............................................................ 131

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