program: business studies course title: digitalisation and new market paradigms course code: mama311...

Program: Business Studies Course Title: Digitalisation and New Market ParadigmsCourse Code: MAMA311Total Credits: 1.5Total lecture Hours: 7.5Course Lecturer: Uwem Essia

COURSE OVERVIEW AND OUTLINECourse Description•The students are taught how digitalization is changing the way business is done.•The new market possibilities created in the digital economy are explained. •How the structure, conduct and performance of firms are affected by digitalization.•The new microeconomics of competition.•The imperative of the new economy for corporate and macroeconomic policies.

COURSE OVERVIEW AND OUTLINEPedagogic Goal • The students capacity to carry out marketing activities in the new markets is

improved.Pedagogic Objectives• The students understand how digitalization has changed the way business is

done.• The students understand how marketing is affected by the Internet.• The student appreciates the implication of digitalization for macroeconomic

policies and overall development programming.Learning Objectives• The students can differentiate the digital economy from the ‘brick and

mortar’ economy.• The students can explain the paradigm shifts in marketing occasioned by

digitalization.• The students is able to link changes the digital economy to macroeconomic

and global development.

COURSE OVERVIEW AND OUTLINELearning Outcomes• The students are able to function better in the digital

economy.• The students are able to undertake researches in digital

marketing related areas in line with global best standards.

Course Outline• Content• Section 1: From Industrial to Digital Economy• 1.1. New basic conditions• 1.2. The positive loop effect of knowledge creation• 1.3. The knowledge worker• 1.4. The Internet as a converging force• 1.5. Layers of the Internet Economy

COURSE OVERVIEW AND OUTLINE• Session 2: Structure-Conduct-Performance• 2.1: Performance in the Digital Economy• 2.2. Production and allocation efficiency • 2.3: Digital Market Structure• 2.3.1. Redefining industries and competing groups • 2.3.2. Barriers of entry to online trading• 2.3.3. Drop-out rate of business startups• 2.3.4. Frictions in the electronic and conventional• 2.3.5. Transparency of virtual markets. • 2.3.6. Economies of enterprise size in the Internet world• 2.3.7. Market structures in virtual markets

COURSE OVERVIEW AND OUTLINE• 2.4. Conduct Of The Digital Economy• 2.4.1. Competitive strategy in the digital economy• 2.4.2. Money and payment• 2.4.3. Innovation• Session 3: Pricing Behavior• Session 4: Behavior of Firms• 4.1. Connectivity And Firm Behavior• 4.2. Dis- and re-intermediation• Session 5: Product Strategy and Advertising

COURSE OVERVIEW AND OUTLINE• Session 6: Other Firm–level Characteristics• 6.1. Company finance and the growth of firms• 6.2. Legal tactics• 6.3. Standards• Session 7: Macroeconomics of Spillovers• 7.1. Role of Government• 7.2. Need for Supranational moderation• Session 8: The Digital Economy and Economic

Growth• 8.1. Digital divide and the catch up• 8.2. Skill requirements

1: From Industrial to Digital Economy 1.1. New basic conditions•Recent ICT explosion has moved world from the ‘brick and mortar’ industrial age to the digital era. •The Internet has changed the basic conditions significantly.•It is still debated how productive the internet has really been – the so-called ‘productivity paradox’.•On the one hand, it is argued that ICT has positive impact on productivity,.•On the other hand, the re-organization necessitated by ICT adoption creates a huge cost.

1: From Industrial to Digital Economy ..1 1.1. New basic conditions•Moreover, it takes many years for the payoffs from the IT revolution to manifest.•But the Internet evolution has already created the “information society”.•And theories of the old economy that are based on the traditional factors of production (land, capital, labor) need re-examination. •Nowadays, intellectual, creative, and innovative capital (basically knowledge) drive development.•The basis for comparative advantage has changed: hence the paradigm shifts.

1: From Industrial to Digital Economy ..2 1.2. The positive loop effect of knowledge creation•The first type of knowledge dominating the digital society is imaginary or creative knowledge:– Presentation skills is an example of imaginary skills.– Team building is an example of creative knowledge.

•The second type of knowledge is practical knowledge that is based on data and information. – Mastery of algebra is practical knowledge – once

internalized the student can apply the new knowledge to physics, chemistry or economics.

– This is necessary where knowledge is needed to obtain and to use (adoption requirements) knowledge.

1: From Industrial to Digital Economy ..3 1.2. The positive loop effect of knowledge creation•The vast cyberspace warehouses data and its network effect increases interactive data exchange exponentially. •This positive loop effect of knowledge creation is highly accelerated. •Computers have increased the ‘brain power’ of humankind magnificently. •So too are interconnectivity of computers and people via the Internet.

1: From Industrial to Digital Economy ..4 1.2. The positive loop effect of knowledge creation•The generation, processing and distribution of knowledge and information drive productivity.•All firms need ICT to be on the competitive technological frontier. •Thanks to the Internet, Knowledge is almost non-rival and non-excludable:– Knowledge cannot be kept secret for any possible long

period; – the new economy is characterized by uncontrollable

spillovers and externalities•It is now important that experts conceptualize how knowledge and information can best be modeled.

1: From Industrial to Digital Economy ..51.3. The knowledge worker•The knowledge society requires a ‘knowledgeable worker’ with up-to-date competencies.•Workers need to renew their skills through “life-long learning” and “on-the-job-training”.•The Internet or virtual space is increasingly an important part of human life.•It is also the dominant medium to create, transmit and share information and ideas. •Nearly everyone is compelled to "think network", and live through the liberalized sea of information flow.

1: From Industrial to Digital Economy ..6 1.3. The knowledge worker

•However, many fear that the cyberspace may someday collapse due to information overload. •The volume and speed of flow of information has been very high.•Many now focus just on synthesizing information already provided.•Much less time is available for analyzing coherences and creating new information.

1: From Industrial to Digital Economy ..7 1.4. The Internet as a converging force•The Internet engulfs all aspects of economic, political, social-cultural and moral life. •Knowledge is converging. It is now more difficult to separate professions and specialties.•It not only loss of distance, but also loss of space. knowledge knows no territorial boundaries.•Individuals, firms, and countries are now under immense pressure to be global players. •Measures of performance for the industrial age have become ill equipped for the new economy.

1: From Industrial to Digital Economy ..81.4. The Internet as a converging force•This is particularly so because network or global effect are difficult to contextualize and measure. •Network externalities exist because the utility from being connected increases when more persons are connected. •Subscription to the network is more valuable as the network is oversubscribed.

1: From Industrial to Digital Economy ..91.5. Layers of the Internet EconomyThe Internet economy can be divided into four layers, namely; Infrastructure Layer, Application Layer, Intermediary Layer, and Commerce Layer•Infrastructure Layer – players in this layer provide the hard infrastructure e.g., backbone providers and Internet service providers, and manufacturers.•Application Layer – players in this layer build upon the infrastructure provided. They include, Internet consultants, and web/software developers, etc.•Intermediary Layer – players in this layer facilitate the meeting and interaction of buyers and sellers over the Internet. These include: online travel agents and brokers, content aggregators, portals/content providers and online advertising,

1: From Industrial to Digital Economy ..10 1.5. Layers of the Internet Economy•Commerce Layer – players in this layer sell products and services to consumers or businesses over the Internet. These include e-tailers, manufacturers selling online, airlines selling online tickets, and online entertainment and professional services.•Note that many companies are players at multiple layers.•For instance, Microsoft and IBM are important players at the Internet infrastructure, applications, and Internet commerce layers.

Session 2: Structure-Conduct-Performance 2.1: Performance in the Digital Economy

•In the new economy, the frontiers for goods and services have melted down to “digital- or non digital” goods. •Digital goods can bypass transportation costs, and quite often the wholesale and retail networks. •They are non-rival, for example, most web users go online to get news and information, and every big newspaper or magazine, and TV stations have valid web addresses.•Digitalized goods are pulled by the demand of the customer, and pushed by the supplier.•Digital products have high fixed cost and low marginal cost;– For example, information is expensive to produce, but

cheap to reproduce.

2: Structure-Conduct-Performance ..1 2.1: Performance in the Digital Economy

•Digital goods are not generally governed by the conventional economic notions of scarcity and increasing marginal cost.•The Internet is blurring traditional description of tradable and non-tradable goods.•It is now possible to trade more goods and services. •Any activity that can be conducted via a screen and telephone can be carried out anywhere in the world. •Some goods, like food, may never become digitalized.•Goods like software are very susceptible to digitalization and hardly get distributed physically anymore.

2: Structure-conduct-performance ..2 2.2. Production and allocation efficiency

•Competitiveness of the virtual markets checks misallocation of resources.•Interactivity of Internet has eased adjustment of prices. •A modern capital market demonstrates how the new economy can be efficient. •The digital economy aligns demand to supply more intimately. •Markets and industries are getting destroyed and created at an unprecedented speed.

2: Structure-Conduct-Performance .. 3 2.2. Production and allocation efficiency

•Today's businesses and consumers demand more customized set of products and services.•Firms in the same industry compete and at the same time collaborate to develop knowledge.•Digitalization encourages co-operational relationship of firms in a value chain. •The new economy defines the basic assumptions and analytical tools.•This has redefine what is meant by “good performance”.

2: Structure-Conduct-Performance .. 4

2.3: Digital Market Structure•The transition from ‘brick and mortar’ to the digital economy raises a number of questions:– What is the structure of industries and competing groups? – Has barrier to entry changed with online trading? – How is the drop-out rate of startups in the emerging

markets? – Do electronic markets have less friction than conventional

markets? – How transparency are virtual markets'? – Does the firm size matter in the virtual market?– Does the textbook model of perfect competition apply in

virtual markets?


2.3: Digital Market Structure2.3.1. Redefining industries and competing groups •Openness of the virtual markets to customers has accelerated competition. •In considering ‘economies of scale’, the concern now is with ‘scope’ instead of ‘size’.•Firms reduce cost with multiple products instead of producing more of one product.•The unit costs are lower when complementary products are produced by a single firm.•The synergy created from complementarities are the 'cross product' and 'cross-learning effects'. •In the old economy the focus of a firm was on maintaining and improving the actual business.

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2.3: Digital Market Structure2.3.1. Redefining industries and competing groups •In the new economy the preoccupation is to continuously initiate new, innovating businesses.•The old firm focused on maintaining and improving the actual business.•But the new firm is to continuously initiating new, innovating, businesses.•The new economy is dominated by ‘unconditional consumer focus’, and product individualization.•This has redefined industries and competing groups. •Measurement systems of the old economy are ill-equipped for the digital economy.

2.3. Digital Market Structure

2.3.2. Barriers of entry to online trading•The new economy has made entry and exit much easier.•Since no firm is able to control the value chain, new firms are often set up virtually overnight. •Outsourcing eases the entry of new business ideas into a market niche (of a value chain).•New ideas and enterprises often do not need need to spend much on fixed cost spending. •Marketing is eased by online ordering.•The “death of distance” kills many market entry inhibitions of spatial economics.

2.3. Digital Market Structure

2.3.2. Barriers of entry to online trading•The worldwide-Web is cutting through many of the distribution and market barriers.•Local firms are increasingly gaining access to foreign markets. •This is extremely beneficial for small and medium-sized firms. •Barriers of entry to global markets, especially in the supply chain, procurement and outsourcing have now almost vanished.

2.3: Digital Market Structure ..2

2.3.2. Barriers of entry to online trading•The internet cuts through distribution and market barriers that limits access to foreign markets. •This is has been quite beneficial for small and medium-sized firms. •However, the network effects and economies of scope favor the established firms.•This has raised some entry barriers for the e-commerce newcomers.


2.3.3. Drop-out rate of business startups•While entry may be easy, growth and survival of businesses constitute the major challenge.•Barriers to entry may be low, but the issues is whether it makes sense to enter in the first place.•The key ingredient for success is creating the “economies of reputation“. •Making a name is paramount in virtual markets.

2.3: Digital Market Structure .. 4

2.3.4. Frictions in the electronic and conventional markets•The ‘network effect’ eases getting several items from a source, rather than from several sources.•It is now easier for many firms to buy components of products instead of producing everything.•Outsourcing is now commonplace in the digital economy. •Increasingly, firms sell diversified but related products and services.

2.3: Digital Market Structure .. 5

2.3.4. Frictions in the electronic and conventional markets•For example, an online book retailer can as well sell air tickets.•The driving force here is the economies of scope. •A waste disposing firm can produce organic manures, and at the same time cultivate vegetables. •Closeness to the consumers makes it easier to better decipher the demand•It also helps to tailor production to the single customer.

2.3: Digital Market Structure … 6

2.3.5. Transparency of virtual markets. •The e-economy can be called a ‘nude economy’ due high transparency of the Internet. •It is possible to search for any thing on the internet.•The ease that can be gathered, analyzed and interpreted has simplified marketing research.•The high level of mutual transparency makes it difficult for consumers to be deceived.•Consumers easily identify how to make some gains, and producers know their customers quite well.


2.3.6. Economies of enterprise size in the Internet world•The vast opportunities to enter the value chain create key roles for the small innovating firms.•Smaller firms can easily supply components for larger firms.•But larger firms have goodwill and scope to diversify much faster than small firms. •Consumers and down line firms prefer to buy variety of items from one source, rather than from several sources.


2.3.7. Market structures in virtual markets•Modern ICT enables the creation of a better and clearer view of the market. •It may seem that the virtual market indeed approximates perfect competition in several ways.•Buyers and sellers generally have access to the same kind of information– Leading to high mutual knowledge between consumer

and producer.

•This approximates the perfect availability of information assumed in perfect competition.

2.4. Conduct Of The Digital Economy

2.4.1. Competitive strategy in the digital economy•Generally, the e-economy tend to approximate the textbook model of perfect competition.•But the threat of entry depends on the industry and on the final goal of the business. •In reality it is much easier for a large firm to ‘cross-enter‘ a new market. •For example, it is easier for a big car importer to also sell computers and its accessories.•A car retailer can as well offer information processing tools.

2.4: Conduct Of The Digital Economy ..1

2.4.1. Competitive strategy in the digital economy•Economies of scope make big firms able to enter almost every market.•The e-economy has weakened customer loyalty as it is very easy to switch to competitors. •Price competition has become intensified, due to high level of transparence. •Price discrimination becomes extremely difficult.•Firms are compelled to satisfy the consumer by every means possible.


2.4.1. Competitive strategy in the digital economy•Costumer’s trust has become increasingly difficult to get and retain.•The firms need to do more quality inducing advertisement. •Geographical factors are no longer the bases for competitive advantages. •The consumer profits from sticking to one company that already knows him well. •The high mutual knowledge between buyer and seller is the basis for costumer loyalty.


2.4.1. Competitive strategy in the digital economy•Firms in an industry produce substitute products continually.•Competition is excessive in the Information-based firms.•It is also the case with the music industries, banking and other intermediary functions.•Knowledge creation has improved performance significantly.•Buyers compete by forcing down prices and bargaining for higher quality or more services.


2.4.1. Competitive strategy in the digital economy•Some buyers also play competitors against each other as they seek more favorable prices. •Consumer sovereignty has compelled firms to collaborate and compete at the same time.•Suppliers are compelled to trust each other. But infomediaries are replacing traditional ties. •Suppliers bargaining power is decreasing.•The high transparency introduced by B2B practices is at the heart of network relationships.


2.4.2. Money and payment•A sound Internet payment system requires security, reliability, scalability, anonymity, acceptability, customer base, flexibility, convertibility, efficiency, ease of integration with applications, and ease of use– Security: the infrastructure supporting electronic

commerce must be usable and resistant to attack.– Reliability: the infrastructure must be highly

available and should avoid any form of failure.– Scalability: The payment infrastructure must

support multiple servers, distributed across the network.


2.4.2. Money and payment– Anonymity : the identity of the parties to the

transaction should be protected. Tracking a transaction should be made highly expensive and difficult.

– Acceptability: the e-payment instrument must be accepted widely and unrestricted by time and space.

– Customer base: the customer base should be vast and well spread for wider acceptability.

– Flexibility: the payment mechanism should support several payment methods and instruments that should be integrated into a common framework.


2.4.2. Money and payment–Convertibility - it should be possible and easy to

move funds from one instrument and currency to another.– Efficiency: the cost per transaction of using the

infrastructure must be insignificant.– Ease of integration: the payment system should

be pliable to upgrading and modifications. – Ease of use: most payments should occur

automatically, and users should be able to monitor their spending without going out of their way to do so.


2.4.3. Innovation•The traditional notion of innovation is linked to R&D, pecuniary expenses, scientific or technical expertise and procurement of equipment. •In the e-economy, innovation is linked to the conception and implementation of new ideas.•The new ideas need the scale of big companies in order to get widely accepted. •Inter-firm cooperation is important; cooperation of firms with the academia is also needful.


2.4.3. Innovation•Firms innovate faster when they can access and implement acquired knowledge rapidly. •This calls for strong link between internal innovativeness and external innovations.•Internal innovativeness eases adopting knowledge produced outside the firm.•Generally, collaborating firms are more innovative than non-collaborating ones. •Collaboration is as important for a big company, as it is for a small start-up.


2.4.3. Innovation•External economies of scale are a basic driving force in the e-economy.•Internet is the ‘big equalizer’, as all firms and individuals can work with same information.•Constantly, collaborations unconsciously develops and extends the frontier of innovativeness.•Everyone involuntarily swims through different waves of innovation at the same time.•What distinguishes firms is the ‘lead time’ of each player.

2.4: Conduct Of The Digital Economy …11

2.4.3. Innovation•It is not necessarily ‘how good’, but ‘how fast’ a firm or consumer is.•Reward in the e-market is driven by “economies of time” or ‘first-mover-advantage’. •The cost of new technologies is reducing at a very fast rate:–For example, a laptop made in 2014 will cost

far less than its 1975 model, and as well have much higher processing power.

Session 3: Pricing Behavior

• Prices in the e-markets are falling in the long run for the average consumer.

• But the cost of e-purchase should be higher that at a physical ‘take-away’ store.

• Global openness and transparence of e-markets is making it more difficult to discriminate in prices.

• The different types of discrimination are as follows:– First-degree price discrimination: also known as

perfect price discrimination. The seller charges a different price for each unit of the good based on the costumer’s maximum willingness-to-pay for that unit.

Session 3: Pricing Behavior …1

– Second-degree price discrimination: also known as nonlinear pricing. Price differ depending on the number of units of the good bought, and not across costumers.

– Third-degree price discrimination: different purchases are charged different prices. But each purchaser pays a constant amount for each unit of the good bought.

• The e-markets give buyers and sellers equal access to retailer information about prices.

• Success depends on how well either party is using the full potential of the Internet for his best benefit.

• Online auctions is common and Customer-to-Customer (C2C) sites have increased.

Session 3: Pricing Behavior ..2

• The sites act like an intermediary, facilitating deals between parties.

• Many e-markets now approximate the stock market, with prices adjusting constantly.

• A dominant dynamic pricing model is known as ‘demand-based pricing’. –This is based on the concept of volume

discounts in the beginning. –Shopping sites allow users to commit to buy a

product if the price drops at least to a specified level within a time period, usually a few days.

Session 4: Behavior of Firms

4.1. Connectivity And Firm Behavior•Inner-firm Management – Interconnectivity Has Accelerated The Speed Of Decision Making.•Requires Less Staff, Flat Hierarchies And More Democratic Leadership Models.•Ict Has Multiplied The Teamwork Potential.•Production Life Cycles Are Getting Shorter And Management Reactions Quicker.•10 Year Planning Is Increasingly Unrealizable.•Long Term Thinking In Virtual Markets Means One Year.

4: Behavior of Firms ..1

4.1. Connectivity and firm behavior•Networking between firms – in e-markets the parties are only one mouse click away.•Virtual platforms where companies can offer their goods are created continually.•Inability to make extra profits makes applicability of perfect competition possible.•Equally, through company extranets and industry trading exchanges, firms are linked to their trading partners.


4.1. Connectivity and firm behavior•Increasingly also, more players along the value chain collaborate.•This reduces inventory, increases sales and improved service levels. •Trading partners and producers share their plans and deal with possible deviations.•By working on issues before they occur, both partners have time to react.

4: Behavior of Firms …3

4.1. Connectivity and firm behavior•Building brand awareness through advertising and marketing is critical for success.•To support branding many firms develop exciting affiliate programs. •For example, a website owner can partner with an affiliate program or producers.•The web site owner is paid a commission for generating the sale.


4.2. Dis- and re-intermediation•Many have argued that e-markets have reduced the importance of intermediation.•The “direct business model”, link customers and suppliers via customized Intranet sites. •Elimination of margins by the ‘direct business models’ mean complete disintermediation.•The more common ‘disintermediation’ is due to elimination wholesale and retail sectors.

4: Behavior of Firms .. 5

4.2. Dis- and re-intermediation•However, a theory of ‘re-intermediation’ by means of ‘infomediary’ has been developed.•Informediaries in made possible by the fact that all parties search the internet.•All parties rely on web-based intermediaries that maximize the value of their data.

Session 5: Product Strategy and Advertising

• Firms and individuals now desire customized set of products and services.

• Firms along the value chain often collaborate to make this possible.

• Software solutions facilitate the entire customer lifecycle: – from driving web traffic to the website,– to capturing leads and guiding customers through their

buying process, – enabling online purchasing and payment,

5: Product Strategy and Advertising …1

– coordinating delivery – and providing them with pre or post-sale

customer service. • The e-economy gives marketing more expansive

role, beyond just selling.• Customer Relationship Management (CRM) has

become very essential.• Pre- and post-sale services have far-reaching

significance in virtual markets.• In addition, managing supply and value chains have

become very important.

5: Product Strategy and Advertising …2

• Typically a marketer now needs to understand supply chain planning system, procurement system, logistics system, and ‘streamlined business production’ or ‘automated supply-chain integration’:– a supply chain planning system, a firm forecasts

and plans how to match supply to demand on a real-time basis;

– a procurement system, a firm shares information with the suppliers and service providers to ensure that it has the right supply of parts and components available;

– a logistics system, a firm ensure its products are delivered to customers in the shortest possible time.

5: Product Strategy and Advertising ..3

– Streamlined business production, the Internet connects parties and facilitates information exchange.

– Demand and supply chains get integrated to deliver faster time-to-market for the company’s products.

– The supply chain links the producers and all trading partners to customers via the internet.

– Collaboration across the extended network of trading partners ensures product delivery in the shortest time and at the lowest cost.

• Analysis-driven workflow can streamline business processes even further.


• For example, analytic software can identify needs based on observed trends.

• Success with trading in the virtual market requires product promotion and advertising.

• The e-economy provides diversity of marketing models: –viral marketing, B2C marketing, affinity

marketing, partner marketing, affiliate programs, B2B marketing, co-marketing, e-marketing, m-commerce marketing, etc.


• Customer Relationship Management (CRM) the retailer’s interaction with the customer generates information about his preferences.

• The information is recorded and analyzed for the producer to meet customer wants.

• This process of ‘capturing and analyzing’ is commonly known as CRM.

• CRM Solutions deliver a complete lifecycle view of customer interactions; – from creating targeted marketing campaigns,

5: Product Strategy and Advertising .. 6

– generating leads and forecasting the potential sales opportunities

– to managing customer relationships across multiple integrated channels

– the goal is complete personalization of the virtual store.

• This makes advertising more impactful and throws open opportunities for cross-selling.

• Cross-selling has less to do with the personalization of the product, but rather with the optimization of the offer.

• For example, shoppers who select televisions are likely to need video CD players.

Session 6: Other Firm–level Characteristics

6.1. Company finance and the growth of firms•Venture capital is now a major institutional and corporate investment good. •Many large firms now have a venture capital firm serving as the general partner. •Some firms setup their venture funds and give employees a chance to invest in startups.

6: Other Firm–level Characteristics ..1

6.2. Legal tactics•Internationally, the United Nations Commission on International Trade Law (UNCITRAL) has completed work on a model law that supports the commercial use of international contracts in electronic commerce. •This model law establishes rules and norms that validate and recognize e-contracts.•It sets default rules for contract formation and governance of e-contract performance.•It defines the characteristics of a valid electronic writing and an original document.


• The model law provides for the acceptability of electronic signatures for legal and commercial purposes.

• And supports the admission of computer evidence in courts and arbitration proceedings.

• But, governments generally face the challenge balancing between free information flow, protecting property rights, and ensuring consumer privacy.

• However, e-contracts can be concluded either directly through the Web, electronic mail or on EDI agreements.


• The selected framework should provide security, privacy, property protection and a reasonable degree of standardization.

• Security - a secure and reliable “Global Information Infrastructure (GII)” is required. Four critical security assurances are required:– Authenticity of the communication, – Integrity - proof that contents of the message have not

been altered, either deliberately or accidentally;– Non-repudiation – the receiver does not deny the

transmission’– confidentiality evidence of nor disclosure to third parties.– Privacy – internet users would prefer that the internet has

privacy.


• Intellectual property - commerce on the Internet often involves the sale and licensing of intellectual property.

6.3. Standards• Standards can allow products and services

from different vendors to work together. • Pre-mature standardization can ‘lock in’

outdated techniques or ‘lock out’ potential trading partners.

Session 7: Macroeconomics of Spillovers

7.1. Role of GovernmentSupport private sector leadership – the e-economy is better led by the private sector.•Government should be proactive and supportive of positive change.•Internet access, education, and support for youths in many ways are needful.•Government should also ensure competitiveness of markets and development of new technologies.•Government should also identify and address market failures.

Session 7: Macroeconomics of Spillovers ..1

• In doing so, government should act as maintainer and proactive promoter.

Maintaining tasks of government• Providing laws to ensure fare play and check

exploitation.• One way of achieving this is to check

monopolization and restricted competition. • The best known measure is antitrust legislation or

competition policy.• This aims primarily at preventing the formation of

outright monopoly.


The promoting task of the government•This should involve:–developing e-infrastructure, –erasing computer illiteracy in society, –and investing extensively on information

creation, communication, and interpretation.

•It equally calls for commitment to life-long learning and learning-by-doing.


7.2. Need for Supranational moderation•The global character of the world-wide-web calls for supranational moderation.•Traditionally there are several forums where government representatives meet. •Further negotiations could build on the expertise accumulated in certain forums on particular issues.•Since, the Internet is difficult to control by a single organization or government, NGOs may have some roles to play.


• Despite its overwhelming importance, ICT has been widely faulted on several grounds.

• It is argued that ICT has failed to generate broad-based multifactor productivity (MFP) improvement.

• The debate on the MFP incapacities of ICT is widely known as the ‘productivity paradox’.

• It was observed that productivity slowed down around 1973, just about the time computers became popular.


• Productivity has remained sluggish ever since.• However, the creation of new knowledge in

the e-economy is a crucial “input factor”. • Knowledge creation is also an important cost

saving innovation.• The IT industry also has a major direct impact

on growth and inflation. • This kind of growth would fall under increase

of stock capital ceteris paribus.

Session 8: The Digital Economy and Economic Growth

• The accelerated demand for IT products is the driving force in many economies since 1994.

• The e-economy also raises the quality of an economy’s workforce and increases income.

• All of this considered, ICT should lead to a permanent increase in productivity.

8.1. Digital divide and the catch up• “Death of distance" of the e-economy should

bring our world closer. • But its realization calls for broad accessibility.

8: The Digital Economy and Economic Growth ..1

• Affordability of the e-infrastructure is required for effective participation in the e-economy.

• But the - digital divide - between those with access and those without is high.

• The digital divide is having tremendous effects nationally and globally.

• Innovations grow like ‘mushrooms’, popping up, almost overnight, unpredictably.

• This is because technical progress is driven by an unequally distributed ‘creative destruction’.


• This means that some people will benefit from the advances before others.

• Those who live around where the “mushroom of innovation” popped up benefit first.

• Access to telecom networks is critical for dissemination of innovations.

• OECD countries accounted for 69.2% of the 741 million main telephone lines in 1996.

• Tele-densities ranged from 45- 65 per 100 population in the developed countries.


• The average was 5.2 in the major non-OECD economies, 4.5 in China, and 1.5 in India.

• More than half of the world’s population have never made a telephone call.

• Yet a city like New York has more telephones than all of rural Asia.

• And London has more Internet accounts than in all of Africa.

• LDCs pay on average three times more than rich country users to access the net.


• An UNCTAD study notes that 20 access hours a month in 1999 cost $90 in Mexico or 15% of average income.

• Compared with only $25 in the US, a mere 1% of average income.

• In Africa, average access charges top $200 a month.

• Differences in ‘hardware-distribution’ affect distribution of benefits from e-markets.

• Advanced economies will naturally gain more.


• Poorer countries need to “catch up” with OECD countries where advances are made.

• Some people see the Internet as the “Big Divider” since it is not universally accessible.

• Inaccessibility make sit difficult to keep up with general development.

• Others claim the Internet to be the “Big Equalizer”.

• Generally, it is difficult to bring everybody up to the same level.


8.2. Skill requirements•Technological change promotes industry growth and demand for skilled workers. •Future employment demands favor highly ICT-competent workers. •ICT has been incorporated into nearly all jobs and professions.•A high level of computer literacy is an essential component of every job.


• The preferred employee is a “knowledgeable worker”.

• Employers prefer employees who are abreast with current development and trends.

• Retraining of labor force will be an important task for employers in the coming years.

• Policies to cope with skill mismatches are already a concerns in many OECD countries.

• The ‘death of distance’ is raised a pool of high mobile international workforce.


• Some workers just need to work online from their homes.

• Overtime virtual offices situated in cyberspace—will become more common.

• Equally, working is increasingly linked to traveling and tourism.

• Many argue that the e-economy has not delivered a ‘leisure society’.

• It is claimed that those who have jobs today work harder and longer than before.


• Virtual employments and multi-tasking have created challenges for the labour market.

• Components of an assignment can be done in several locations without workers having to physically relocate.

• This international division of labor has created challenges for immigration laws of states.

• Given the global scale and transparence of the e-economy, the reward for talented workers has increased.


• The income of low skill workers have reduced leading in wage inequalities.

• Realities of the e-economy question the coherence of the industrial age.

• However coherent paradigms of the e-economy are yet to emerge, due perhaps to fluidity of the present age.

Suggested Materials

• Iwuagwu, Obi (2011). The Cluster Concept: Will Nigeria’s New Industrial Development Strategy Jumpstart The Country’s Industrial Takeoff? Afro Asian Journal of Social Sciences 2(2-4) 1-24

• Hilbert, Martin R. (2001). From industrial to digital economics: an introduction to the transition. A Publication of Restructuring and Competitiveness Network, Santiago, Chile,

• Barthwal, R. R. (2010) Industrial Economics: An Introductory Textbook (3rd Ed) New Age International, India

• MIT (2003) Course 14.23 Government Regulation of Industry (Class 1) The Cambridge –MIT Institute of Electricity Project

• Hinde, k. (2000). The Economics of European Industry Being Lecture Note for NIT EC455 Level 3, Semester 2

• Symeonidis, G. (2011) Industrial Economics Being Lecture Notes EC3099, 2790099. University of London International Programme

• Lecture Notes on Industrial Organization and Competition Policy. Module 1: Basic Concepts in Microeconomics. Cost concepts. Http://http-server.carleton.ca/~dmcfet/courses/lectures3.pdf

• Cabral, L. (2013) Introduction to Industrial Organization (2nd Ed.) Teaching Notes• Marcos Anabela (undated) A New Marketing Paradigm in the Knowledge Economy

program: business studies course title: digitalisation and new market paradigms course code: mama311...

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