Digitalization in Open Economies (eBook)

Preface 6
Contents 8
Part I Characteristics of the Digital Economy 16
1 Introduction 17
2 Digitalization 21
2.1 Overview on Digitalization 21
2.1.1 History 21
2.1.2 Digitalization and the Internet 22
2.1.2.1 Structure of the Internet 22
2.1.2.2 General Purpose Technology 23
2.1.3 Indices of Digitalization 23
2.2 Characteristics of Networks, IT Servicesand Digital Goods 25
2.2.1 Networks 26
2.2.2 IT Services 28
2.2.3 Digital Goods 29
2.2.4 Related Topics 30
2.2.4.1 Information and Communication Technology (ICT) 30
2.2.4.2 Software on the Borderline Between Goods and Services 32
2.2.4.3 Open-Source Software 33
2.3 Recent Developments 36
2.3.1 Networks 36
2.3.1.1 Overview 36
2.3.1.2 Peering and Transit 36
2.3.1.3 Price Development 37
2.3.1.4 Recent Innovations 38
2.3.2 IT Services 39
2.3.2.1 Overview 39
2.3.2.2 Outsourcing and Offshoring 39
2.3.2.3 Recent Innovations: Service-Oriented Architectures 41
2.3.3 Digital Goods 42
2.3.3.1 Overview 42
2.3.3.2 Music Industry 44
2.3.3.3 Recent Innovations 45
2.3.4 Related Topics 45
2.3.4.1 Computer Power and Price Measurement 45
2.3.4.2 ICT 48
2.3.4.3 Voice over IP 49
2.3.4.4 E-Commerce 50
2.3.4.5 Digital Divide 51
2.4 The Impact for Productivity: Results fromICT Research 53
2.4.1 Introduction 53
2.4.2 Theoretical Foundations: Neoclassical Growth Assumptions 54
2.4.2.1 Neoclassical Case 54
2.4.3 Productivity Accounting and Empirical Studies Regarding ICT 56
2.4.3.1 Firm-Level Studies 56
2.4.3.2 Sectoral Decomposition of Productivity Figures: Industry-Level Studies 57
2.4.3.3 Macro-Level Studies and Sectoral Decomposition of TFP 58
2.4.3.4 Interpretation and Limitations 63
2.4.4 Productivity Measurement and Digital Goods 66
2.4.4.1 Software Accounting 67
2.4.5 Summary and Open Questions 68
2.4.5.1 Common Sense 68
2.4.5.2 Questions to be Solved 69
2.5 Summary of Part I 70
Part II Economic Theory 71
3 Theoretical Foundations 72
3.1 Some Microeconomic Aspects 72
3.1.1 Networks 72
3.1.2 IT Services 73
3.1.3 Digital Goods 74
3.1.4 Market Structure 75
3.2 Dynamics of Two-Sided Markets 77
3.2.1 Introduction 77
3.2.2 Two Sided Markets: Literature Overview 78
3.2.2.1 Empirical Evidence and Anti-Trust Policy 80
3.2.3 Model: Basic Set-Up of Two-Sided MarketsOptimization 80
3.2.4 Model: Development of a Business Strategy 84
3.2.4.1 Splitting the Phases 84
3.2.5 Summary 90
3.3 Theories on Internationalization 90
3.3.1 Key Drivers in Management Literature 90
3.3.1.1 Business Strategies and Internationalization 90
3.3.1.2 IT Outsourcing and IT Offshoring 93
3.3.2 Macroeconomic Theorieson Internationalization 97
3.3.2.1 Traditional Approaches: Trade and FDI 97
3.3.2.2 Theory on Fragmentation 98
3.4 IT Administration Rights 99
3.4.1 Introduction 99
3.4.2 The Model of IT Administration Rights 100
3.4.3 Distribution of IT Administration Rights 103
3.4.4 Potential Caveats 104
3.4.5 Alternative Formulation 105
3.4.6 Summary and Outlook 107
4 Networks in a Fragmentation Model 108
4.1 Setup of the Model 108
4.2 Trade-Off Between International and Local Producers 112
4.3 Digitalization 113
4.4 Interpretation 115
5 IT Services in a General Equilibrium Macro-Model 116
5.1 Introduction 116
5.2 General Equilibrium in the Integrated Economy 117
5.2.1 Structure of the Model 117
5.2.2 Basic Set-Up: Integrated Economy 118
5.2.2.1 Demand 118
5.2.2.2 Production 119
5.2.3 Organization 120
5.2.3.1 Timing of the Nash Bargaining 120
5.2.3.2 Optimal Output 122
5.2.3.3 Comparison of Separation, Integration and Complete Contracts 125
5.2.4 Ownership Structures 127
5.2.5 General Equilibrium 128
5.3 Two-Country Model 132
5.3.1 Factor Price Equalization 132
5.3.2 Trade in Intermediates 138
5.3.3 Trade in IT Services 139
5.4 Summary and Interpretation 141
6 Model: Entry of a Digital Goods Producer 142
6.1 Introduction 142
6.2 Quality Competition 142
6.2.1 Closed Economy 142
6.2.2 Market Entry from Abroad 147
6.3 Two-Sided Markets 148
6.4 Interpretation 152
6.4.1 Potential Expansion 153
7 Comparison of the Models 154
7.1 Framework 154
7.2 Differences in Theoretical Structures 155
7.3 Main Conclusions 156
Part III Economic Policy 160
8 General Political Perspectives 161
8.1 Economic Policy: Principles, Objectives,and Instruments 161
8.1.1 General Goals 161
8.1.2 Principles of Economic Policyin the Digital Age 161
8.1.3 Overcoming the Digital Divide 163
8.1.4 Media Policy 165
8.1.4.1 Trade-Off Between Culture and Business 165
8.1.4.2 Broadcast Regulation 166
8.1.5 Data Privacy and Safety 167
8.1.6 Regulation and Competition Policy 168
8.1.6.1 Conceptual Issues 168
8.1.6.2 Modus Operandi in EU 171
8.1.7 Digitalization, Employment, and Education 172
8.1.8 Trade Policy 174
8.1.8.1 Overview 174
8.1.8.2 Types of Trade Agreements 175
8.2 Institutional Players 178
8.2.1 The WTO System 178
8.2.1.1 Overview 178
8.2.1.2 GATT 178
8.2.1.3 GATS System 179
8.2.1.4 Differences Between GATS and GATT 181
8.2.1.5 TRIPS Agreement and WIPO 181
8.2.1.6 ITA 183
8.2.1.7 Moratorium on E-Commerce 183
8.2.1.8 GPA 184
8.2.1.9 Dispute Settlement 184
8.2.1.10 Summary of WTO System 184
8.2.2 The European Community Approach 184
8.2.3 Internet Governance 186
9 Policy for Networks, Services, Digital Goods 188
9.1 Networks 188
9.1.1 Political Goals 188
9.1.2 Access Prices and Interconnection 189
9.1.2.1 Lessons from the Telecommunications Sector 190
9.1.2.2 Theory of Interconnection Applied on IP-Based Connections 191
9.1.3 Regulatory Instruments 194
9.1.4 New Generation Networks 195
9.1.5 Network Neutrality 197
9.2 IT Services 198
9.2.1 Goals 198
9.2.2 Standards 199
9.2.3 GATS and IT Services 201
9.2.4 National Initiatives and E-Government 202
9.3 Digital Goods 203
9.3.1 Overview and Policy Challenges 203
9.3.2 Intellectual Property Rights (IPR) 204
9.3.2.1 IPR and Competition Policy 204
9.3.2.2 Copyright Protection and Digital Rights Management 204
9.3.2.3 Software Patents in the Light of Theory 205
9.3.3 Trade Policy 206
9.3.3.1 Digitally-Delivered Goods: GATT or GATS? 207
9.3.3.2 EC and US Positions in WTO Negotiations 207
9.3.3.3 Prospects and Evaluation of the Classification Issue 209
9.3.4 Consequences of the Two-Sided MarketsApproach 211
9.4 Convergence Issues 212
9.4.1 Overview 212
9.4.2 Voice Over IP 213
9.4.3 Broadcast Over IP 216
9.4.4 International Policy Aspects 217
10 Integrating Theory and Policy 219
10.1 Conclusions from Parts I–III 219
10.2 Proposal for an Integrated Policy Perspective 220
10.3 Policy Challenges 224
11 Summary 226
12 Appendices 231
12.1 Telegraph Lines 231
12.2 Sells and Purchases Ordered over the Internet 232
12.3 Exports and Communication: An Empirical Analysis 235
12.3.1 Descriptive Analysis 236
12.3.2 Econometric Analysis I: Estimationfor Total Exports 237
12.3.3 Econometric Analysis II: Estimationfor Export Share 238
12.3.4 Interpretation 240
12.4 Variables of the IT Services Model 240
12.5 Calculation of the Demand Function for y(i) 241
12.6 Incomplete Contracts 243
12.7 Complete Contracts 245
12.7.1 Calculation of First Derivate of with Regardto 246
12.7.2 Number of Variants Produced in a Country 248
12.8 EU-Markets Susceptible to Ex Ante Regulation 251
12.9 Regulatory Price Instruments 251
References 253