did you say new economy?

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  • 1. IPADE International Week October 2005 Whos Afraid of the Big Bad Wolf?: Internet and the Content Industry in the New(?) Economy Eric Briys
  • 2. Not to be reproduced or quoted without the authors prior consent Content Sharing Knowledge Flashback: The elusive quest for prosperity: What history has in its bag for us n The New Economy: From perspiration to inspiration: The economics of ideas n Consequences: From the optimizing manager to the adaptative manager n The content/media industry: Wrong or right? n Paving the way to the future: Some guidelines n Cyberlibris, The First European Digital Library -2
  • 3. Not to be reproduced or quoted without the authors prior consent The quest for prosperity Sharing Knowledge Whatever the perspective taken, the paramount question is that of wealth: n The wealth of nations, shareholders wealth, managing for value etc This is a challenging quest: Why is it that some are wealthy and successful, n and some fail and stay poor? Yalis question and the cargo cult: How is that you have so much cargo n Jared Diamond and we so little? Cyberlibris, The First European Digital Library -3
  • 4. Not to be reproduced or quoted without the authors prior consent The quest for prosperity Sharing Knowledge Yalis question haunts also corporate boards. n Tons of acronyms and buzzwords were crafted that define value metrics: n SVA, EVA, ROI, EBIT, CFROI, balanced scorecards, value chain, corporate governance Joel Stern Cyberlibris, The First European Digital Library -4
  • 5. Not to be reproduced or quoted without the authors prior consent Back to basics Sharing Knowledge Lets get back to basics: n Put simply, prosperity is the consequence of one thing and one only: Matching talent with capital, and holding both sides accountable. Reuven Brenner In a nutshell: n K T Cyberlibris, The First European Digital Library -5
  • 6. Not to be reproduced or quoted without the authors prior consent Flashback: The history of prosperity Sharing Knowledge Change is a new phenomenon indeed! Malthus was right for 55 centuries out of the last 57. Cyberlibris, The First European Digital Library -6
  • 7. Not to be reproduced or quoted without the authors prior consent Flashback: A parsimonious model Sharing Knowledge Robert Solows model (1956, Nobel Prize 1987) n K = Capital n L = Labor n Y = GDP = F(K, L) = Production Function Max Y - rK - wL with respect to K et L . Robert Solow Outcome: Production grows with population in the steady-state: Hence, no n wealth per capita growth. Does yield cross-country differences n But this is more a model of perspiration than inspiration . n Cyberlibris, The First European Digital Library -7
  • 8. Not to be reproduced or quoted without the authors prior consent Flashback: Perspiration economics Sharing Knowledge n Industrial Revolution: Muscle Power: Why is that whenever I ask for a pair of hands, a brain comes attached? Henry Ford n In Henry Fords days, capital was the scarce resource that organisations were designed to use efficiently, as his assembly lines did: OPTIMIZATION n Alfred Marshall: Principles of Economics: Optimization, Calculus, Marginalism Henry Ford Alfred Marshall n Gilded Age/Robbing Barons: Yes, the Industrial Revolution was also inspired . But, this inspiration, this knowledge was pegged to capital. Lots of people had a thorough knowledge of chemistry, few corporations were producing chemical products though. Hence knowledge was not free !!! Cyberlibris, The First European Digital Library -8
  • 9. Not to be reproduced or quoted without the authors prior consent Perspiration is not enough! Sharing Knowledge K T Hence: In a perspiration world: n The only way to genuine prosperity is to have technological improvements, n that is inspiration, namely IDEAS. This leads us to the Economics of Ideas and the New Economy n Cyberlibris, The First European Digital Library -9
  • 10. Not to be reproduced or quoted without the authors prior consent New economy: Inspiration leads! Sharing Knowledge How to best define the new economy? n Ideas: Ideas improve the technology of production. A new idea allows a given bundle of inputs to produce more or better output Two Keys n Atypical cost structure: The first unit is costly to produce (significant initial outlay), the next units have a low or zero marginal cost Cyberlibris, The First European Digital Library - 10
  • 11. Not to be reproduced or quoted without the authors prior consent New economy: Ideas Sharing Knowledge Are ideas a good just like any other economic good? n Excludability-Rivalry scales n Rivalrous/Divisible Non rivalrous/Non Shapiro / Varian divisible Excludable CD PLAYER TV CABLE Mildly excludable SOFTWARE Non excludable FISH IN THE SEA PYTHAGORE THEOREM Cyberlibris, The First European Digital Library - 11
  • 12. Not to be reproduced or quoted without the authors prior consent New Economy: Atypical cost structure Sharing Knowledge What defines New Economy, according to Daniel Cohen, is its atypical cost n structure, namely a significant (not to say massive) initial outlay and a low marginal cost for the next units Consequence: The pure and perfect competition model falls apart. Firms will n enter only if they can charge a price higher than marginal cost, hence a move away from perfect