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Tomaž Turk: The Market Dynamics of Digital Content.

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Presentation on theme: "Tomaž Turk: The Market Dynamics of Digital Content."— Presentation transcript:

1 Tomaž Turk: The Market Dynamics of Digital Content

2 Digital content The user view of digital technology Information markets The role of libraries Price for access to digital content Spam economics Copyright - the price of creativity ESPOSITO, Joseph J.: The Processed Book. First Monday, 8 (2003), 3 (URL: KENNEY, Anne R.: Digital to Microfilm Conversion: A Demonstration Project (URL: ) KINGMA, Bruce R.: The Economics of Information: A Guide to Economic and Cost-benefit Analysis for Information Professionals, Libraries Unlimited, Englewood, PHILLIPS, Fred Y.: Market-Oriented Technology Management. Berlin: Springer, SCHIFF, Frederick: Business Models of News Websites: A Survey of Empirical Trends and Expert Opinion. First Monday, 8 (2003), 6 (URL:

3 New technologies, digital content Higher productivity at low costs Variable cost of digital content are relatively low (in comparisson to fixed costs) Marginal cost of one copy (access to digital content) are relatively low for access provider and for user Digital content is a public good (its consumption is not constrained to one user or one usage)

4 Classic or digital? The user view Classic vs. digital media access costs from a user perspective. The user respects his/her fixed costs as well.

5 The price for a digital content - a fee The price sets at marginal costs, but only on a perfect market. What about low marginal costs of information goods? A fee for access should cover the total costs. A - a deadweight loss - the price is too high; an additional copy provides 0,20 Euros of marginal benefit, which is more than its marginal costs.

6 Access fee Equilibrium at 10,000 accesses. How to charge for access?

7 Access fee If the charging system is expensive and inefficient, there is a deadweight loss on the market. The cost of charging.

8 Access fee Fortunatelly, new technologies enable higher productivity and efficient charging mechanisms.

9 Market for books and journals The market for books and journals represents the supply from publishers and the demand from individuals and libraries. Libraries are providing arround 5 % of quantity demanded, but they value books and journals at a higher level (since they represent the demand for all of their patrons). The sketch shows the equilibrium point, where the optimal level of books and journals is provided and demanded in a given society.

10 Demand for books by library An individual library's demand curve is a sum of demand curves of its patrons. For example, if the price for a book would be 40 Euros, the quantity demanded from this library would be 30,000 pieces.

11 Demand for books by library Since the market price for a book is 30 Euros, the library is interested in higher number of titles.

12 Market for books and journals Can library effectively estimate the value of books and journals for its patrons? If the estimate is too low, then the library biases the signals sent to the market, which results in a deadweight loss.

13 The role of libraries How the transaction and opportunity costs influence the decisions? The example with traditional media: Each patron has some benefit from a journal......but using the library represents additional costs (e.g. travel) If a customer buys its own copy of a journal, he has additional expenses (space on the shelf, paying the bill...) This is the space for the publisher, he can charge that price to an individual, without the danger of loosing a customer.

14 The role of libraries How the transaction and opportunity costs influence the decisions? The example with traditional media: Each patron has some benefit from a journal......but using the library represents additional costs (e.g. travel) If a customer buys its own copy of a journal, he has additional expenses (space on the shelf, paying the bill...) On the other hand, he can charge the library for the subscription. The value of a title for each customer is the difference between the received benefit and library's opportunity costs.

15 The role of libraries Same example with digital journal: In the long run, the price will drop since the costs for publishers are lower. Libraries "gather" and provide access to different bundles of information. Their transaction costs for patrons are lower than that for a group of publishers.

16 Spam as a negative externality The cost of spamming includes originator's cost...

17 Spam as a negative externality...and marginal cost for receivers.

18 Spam as a negative externality A spammer counts on some benefit for his marketing efforts - he plans to send 40,000 copies.

19 Spam as a negative externality...but there are too many copies of message for this activity to be at the optimum for the society.

20 Spam as a negative externality We forgot the benefits for the society (the information reaches the customer). How to provide "a user friendly spam"?

21 Information literacy Personal value of a course for atendees gives 3,000 atendees with given marginal costs for providing a course.

22 Information literacy Other activities in the society can have benefits as well, thus we have positive network externalities. They are not recognised on the market! The government can assess this with the subsidy.

23 Creativity market Avtor maksimizira svoj donos z (monopolno) ceno P, cena na ravni mejnih stroškov bi bila prenizka, da bi financirala njegovo dejavnost. Author maximizes his revenue through the higher price P. The price at his marginal cost would be critical for total costs recovery. Copyrights induce the monopoly situations on the market.

24 Creativity market This results in a deadweight loss. A possible solution: market segmentation

25 Supply side It can happen that author's creativity is at the social equilibrium regarding marginal social benefit and his marginal costs, but this doesn't cover his total costs.

26 Supply side...so he reduces his output and responds with higher prices.

27 Supply side The society can recognize this and increases the copyright law enforcement (the lenght of the patent, breadth - similarity,...)...

28 Creativity market...but at a higher price.


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