Varian-Farrell-Shapiro - The Economics of Information Technology Exzerpt
Aus Leowiki
Varian, H.R./Farrell, J./Shapiro, C. (2004) The Economics of Information Technology: An Introduction.
Varian (S. 1-47)
“Constant fixed costs and zero marginal costs are common assumptions for textbook analysis [..] [b]ut for information goods, this sort of cost structure is very common – indeed, it is the baseline case.” (S. 3)
“As Schumpeter points out [..], combinatorial innovation is one of the important reasons why inventions appear in waves or ‘clusters,’ as he calls them[.]” (S. 6)
“Such open-source software is like the primordial soup for combinatorial innovation. All the components are floating around in the broth, bumping up against each other and creating new molecular structures, which themselves become components for Future development.” (S.8)
“One force that undoubtedly led to the very rapid expansion of the web was the fact that HTML was, by construction open source. From conception, web browsers have enabled users to ‘view sorce,’ which meant that many innovations in design or functionality could immediately be adopted by imitators – and innovators – around the globe.”
“Price discrimination is important in high-tech industries for two reasons: first the high-fixed-costs, low-marginal-cost technologies commonly observed in these industries often lead to significant market power, with the usual inefficiencies. In particular, price will often exceed marginal cost, meaning that the profit benefits to price discrimination will be very apparent to the participants.”
“Fudenberg and Tirole (1998) investigate models where a monopolist can discriminate between old and new customers by offering upgrades, enhancements and the like. [..] Acquisti and Varian (2001) also show that if the monopolist can offer an enhanced service such as one-click shopping or recommendations based on purchase history, it may be optimal to condition prices on earlier behaviour and extract some of the value from this enhanced service. Even in a competitive environment, a seller may have a partial monopoly in providing personalized services since it can customize those services in light of previously observed purchase behaviour. The resulting equilibrium exhibits a form of lock-in: some of the consumers are loyal to the vendors they originally patronized, since those vendors are able to provide personalized enhanced services they find particularly valuable.” (S. 18; Software als Erfahrugnsgut,)
“[Bundling] is particularly attractive fo information goods, since the marginal cost of adding an extra good to a bundle is negligible.” (S. 19; Microsoft Software-Bundles wie Internet-Explorer oder Media-Player)
„Bakos and Brynjolfsson (1999, 2000, 2001) [..] show that bundling significantly enhances firm profit and overall efficiency, but at the cost of a reduction in consumer surplus. They also note that these effects are much stronger for information goods than for physical goods, due to the zero marginal cost of information goods.” (S. 20)
“In many cases the only way a potential entry could effectively compete would be to offer a bundle with both products. This not only increases development costs dramatically, but it also makes competition very intense in the suite market - anot so sweet outcome for the entrant. When Sun decided to enter the office suite market with StarOffice, a competitor for Microsoft Office, it offered a package at a price of zero, recognizing that it would take such a dramatic price to make headway against Microsoft’s imposing lead.” (S. 21)
“When you witch automobiles from Ford to GM, the change is relatively painless. If you switch from Windows to Linux, it can be very costly. You may have to change document formats, application software, and, most importantly, you will have to invest substantial time and effort in learning the new operating environment. Changing software environments at the organizational level is also very costly. [..] These switching costs are endemic in high-technology industries and can be so large that switching suppliers is virtually unthinkable, a situation known as “lock-in.” (S. 21; dort auch noch zahlreiche Quellen zu Switching-Costs und Lock-In.)
„[L]ock-in can be very profitable fo firms. It is not obvious that switching costs necessarily reduce consumer welfare, since the competition to acquire the customers can be quite beneficial to consumers. [..] though he acknowledges that in many cases welfare may go either way, Klemperer (1995) concludes that switching costs are generally bad for consumer welfare: they typically raise prices over the lifetime of the product, create deadweight loss, and reduce entry.” (S. 23)
“The market[for printers, Anm.] is competitive ex ante, but since cartridges are incompatible, it is monopolized ex post. [Hervorh. i. O.].” (S. 24)
“We have already noted that many information- technology-related businesses have cost structures with large fixed costs and small, or even zero, marginal costs. They are, to use the textbook term, ‘natural monopolies’.” (S. 25)
“Christensen (1997) has emphasized the role of ‘disruptive technologies’: low-cost, and, initially low-quality, innovations that unseat established industry players.” (S. 26)
“PCs and operating systems are technologically obsolete far before they are functionally obsolete.” (S. 27)
“In summary, although supply-side economics of scale may lead to more concentrated industries, this may not be so bad for consumers as is often thought. Price discipline still asserts itself through at least four different routs:
Competition to acquire monopoly [..]
Reduction in fixed costs [..]
Competition with your prior production [..]
Pressure from complementors [..]
(S. 27-28; Auffallend ist, dass für Microsoft von den vier Gründen maximal der Dritte zutrifft, der aber durch die autonom festgelegte Support-Dauer auch gering ausfällt. Hinzu kommt, dass die Hardwar-entwicklung im Gegenteil sogar noch den Wettbewerb mit der „prior production“ verringert, Stichwort: Treiber.)
„The fourth welfare theorem assumes that the competition fort he monopoly rent necessarily benefits consumers. If the strategic variables for the firms are prices, this is probably true. Other strategic choices such as innovation, quality choice, and so on also tend to benefit consumers. However, firms may also compete on other dimensions that have less benign consequences, such as political lobbying, the accumulation of excess capacity, and premature entry. [..] I believe that the choice of dimensions in which to compete has not received sufficient attention in the literature and that this is a fruitful area for future research. [..] Designing an environment in which competition results in transfers to consumers, rather than wasteful rent dissipation, is clearly an attractive policy goal.” (S. 30; Im Falle der Innovation und Qualität ist das im Softwaremarkt schon fraglich, ebenso wie dysfunktionaler Lobbying-Wettbewerb im Microsoft-Fall offensichtlich ist; hinzu kommt, dass das Microsoft-Monopol zum bereits etabliert ist.)
“Demand-side economies of scale are also known as ‘network externalities’ or ‘network effects,’ since they commonly occur in network industries. [..] The literature distinguishes between ‘direct network effects’ [..] and ‘indirect network effects,’ which are sometimes known as ‘chicken and egg problems.’ [..] Indirect network effects are endemic in high-tech products. [..] In each case, the demand for infrastructure depends on the availability of applications and vice versa.” (S. 33)
“With supply-side economies, average cost decreases with scale, while with demand-side economies of scale, average revenue (demand) increases with scale. [..] When network effects are present, there are normally multiple equilibria. If no one adopts a network good, then it has now value so no one wants it. If there are enough adopters, then the good becomes valuable, so more adopt it – making it even more valuable. Hence network effects give rise to positive feedback.” (S. 34)
“Hence the middle equilibrium represents the ‘critical mass.’ If the market can get above this critical mass, the positive feedback kicks in and the product zooms off to success. But if the product never reaches a critical mass of adoption, it is doomed to fall back to the stable zerop-demand/zero-supply equilibrium. [..] Though this story is evocative, I must admit that the dynamics is rather ad hoc. It would be nice to have a more systematic derivation of dynamics in network industries. Unfortunately, microeconomic theory is notoriously weak when it comes to dynamics and there is not very much empirical work to determine with certainty what dynamic specifications make sense.” (S. 34-35)
“Network effects are clearly prominent in some high-technology industries. Think for example, of office productivity software such as word processors. If you are contemplating learning how to use a word processor, it is natural to lean towards the one with the largest market share, since that will make it easy to exchange files with other users, easier to work on multi-authored documents, and easy to find help if you encounter a problem. If you are choosing an operating system, it is natural to choose the one that has the most applications of interest to you. Here the applications exhibit direct network effects and the operating system/applications together exhibit indirect network effects. Since many forms of software exhibit supply-side increasing returns to scale, the positive feedback can be particularly strong: more sales lead to both lower unit costs and greater appeal to new customers. Once a firm has established market dominance with a particular product, it can be extremely hard to unseat it. In the context of the Microsoft antitrust case, this effect is known as the ‘applications barrier to entry.’” (S. 36-37)
“Following Besen and Farrell (1994) we describe the three forms of competition in standards setting:
Standards war Firms compete to determine the standard.
Standards negotiation Both firms want a standard, but disagree about what the standard should be.
Standards leader One firm leads with a proprietary standard, the other firm wants to interoperate with the existing standard. [Herv. i. O.]” (S. 38)
“Expecations management is very common; when there were two competing standards for the 56 Kbit/s modems, each producer advertised that it had an 80 percent market share.” (S. 39; vgl. Microsofts VaporWare-Strategie; Erwartungen.)
“In other cases, the leader may choose to change its technology frequently to keep the followers behind. Frequent upgrades have the advantage that the leader also makes its own installed base obsolete, helping to address the durable-goods monopoly problem mentioned earlier.” (S. 41; wobei es auch um die Herstellung von Inkompatibilitäten ist, vgl. proprietäre Java-Entwicklungen, ActiveX im Browser-Bereich)
„For example, the open-source community has been very clever in building adapters to Microsoft’s standards through reverse engineering. Samba, for example, is a system that runs on Unix machines that allows them to interoperate with Microsoft networks.” (S. 41)
“Lock-in often occurs because users must invest in complementary products, such as training, to effectively use a good.” (S. 42)
Farrell/Shapiro (S. 49-86)
“Like most computer software companies, Microsoft uses copyrights, patents, and secrecy to protect its software programs (notably Windows and Office), worth tens of billions of dollars. Microsoft uses all three of the primary strategies discussed by Professor Varian: price discrimination, lock-in and exploitation of network effects through the control of proprietary interfaces.” (S. 49)
“[T]here is a risk that when copyright law is applied to computer software some of these long-lived copyrights confer far more market power than copyrights on books or music ever did, and far more than is appropriate given the contribution of the copyright holder. This is for two reasons. First, copyrighted computer software, such as Microsoft Windows, can have far greater economic significance than any single book, musical composition or movie. Second, copyrights can interact with network effect/interfaces and turn what might initially have been rather ‘arbitrary’ choices (with many alternatives) into ‘essential’ choices (with no good alternatives) once users standardize on a product or interface. [..] If network effects are strong, a copyright including interface protocols can thus confer a good deal of market power.” (S. 56)
“They also represent a fundamental clash of views about the sources of innovation and creativity. The incentives school focuses on whether an innovator can capture a large portion of the benefit of his or her creation. [..] The openness school, by contrast, thinks that it somewhat misses the point to focus on a few firms’ incentives for working harder. First of all, there are incentives – often quite strong – for innovations and creativity quite aside from intellectual property.[Herv. i. O.]” (S. 59)
“Intriguingly, these competing views are battling not only in the public policy arena, as copyright law is interpreted and redefined in the face of emerging digital technologies, but in the commercial arena as well, especially in the computer software industry. The most visible example of this is the current struggle between Microsoft, promoting its ubiquitous and proprietary Windows operating system, and Linux, the open-source software operating system widely used on server computers. As fascinating as we find this particular battle, it should not be seen as a test of one grand view against the other. At best, it is a test of which model (proprietary software vs. open-source software) works better in a particular market niche (operating system software), with its own peculiar fact patterns (such as the substantial advantage enjoyed by Microsoft based on its installed base of Windows desktop machines).” (S. 62-63; Zshg. zwischen kommerzieller und politischer “Arena” ist im Fall öffentlicher Körperschaften offensichtlich)
„Intellectual property rights greatly influence the switching costs associated with information technology such as computer hardware and software. A leading example is Microsoft Office. In addition to the user interfaces associated with Microsoft Word, Excel and PowerPoint, with which millions of users have become familiar, these software programs involve proprietary file formats that have trade secret and copyright protection. File formats are an important aspect of switching cost: a major obstacle facing other productivity programs is the difficulty they have achieving full compatibility when importing and exporting files from and to Microsoft Office. For example, Sun’s StarOffice has had trouble offering enough compatibility to take significant sales away from Microsoft Office.” S. 77-78)
“Another example involves the licensing of complex business software, such as database software or transaction processing software, followed by annual upgrades and support for that software. Again, the initial vendor is very likely to have a significant advantage over third-party vendors in providing both upgrades and support for its software.” (S. 79)
