I    E                              100
          S    E   R  
            desarrollo productivo
                               rom industrial economics to
                          F
                          digital economics: an
                          introduction to the transition
                          Martin R. Hilbert
                          Restructuring and Competitiveness Network
                          Division of Production, Productivity and Management
                          Santiago, Chile, February 2001
          From industrial economics to digital economics
         This document was prepared by Mr. Martin R. Hilbert, Consultant, Division of
         Production, Productivity and Management of the Economic Commission for
         Latin America and the Caribbean of the United Nations (ECLAC). The views
         expressed in this document, which has been reproduced without formal editing,
         are those of the author and do not necessarily reflect the views of the
         Organization.
         The author would like to express gratitude to the to the following people for their
         support in carrying out the study: besonders meiner Familie, Francisco Gutiérrez,
         Joseph Ramos, Massimo Scapini, Martin Hubmann, Janine Berg, Paulina
         Barrera, and especially Jorge Katz, to whom I am heavily indebted for his
         structural guidance, valuable input, for his time and energy, and whom I admire
         for his open-mindness, which is so necessary- but still so often missing
         nowadays.
         United Nations Publication
         LC/L.1497-P
         ISSN: 1020-5179
         ISBN: 92-1-121297-9
         Copyright © United Nations, February, 2001. All rights reserved
         Sales No.: E.01.II.G.38
         Printed in United Nations, Santiago, Chile
         Applications for the right to reproduce this work are welcomed and should be sent to the
         Secretary of the Publications Board, United Nations Headquarters, New York, N.Y.
         10017, U.S.A. Member States and their governmental institutions may reproduce this
         work without prior authorization, but are requested to mention the source and inform the
         United Nations of such reproduction.
                                                                                                                              o
                         CEPAL - SERIE Desarrollo productivo                                                                 N 100
                                                       Contents
                                                       Abstract       ........................................................................................ 9
                                                       Introduction..................................................................................... 11
                                                       I.   New basic conditions............................................................ 11
                                                            1.   Revolution, evolution or hype?  .......................................... 11
                                                            2.   The knowledge society........................................................ 13
                                                                      
                                                                 2.1  The positive loop effect of knowledge creation........... 13
                                                                 2.2 The impact of modern ICT........................................... 15
                                                                      2.2.1    Computer......................................................... 15
                                                                      2.2.2    Interconnectivity ............................................. 15
                                                                 2.3 Production process and evaluation of knowledge........ 17
                                                                 2.4 The knowledgeable worker.......................................... 18
                                                            3.   Inter-net-working................................................................. 19
                                                                      
                                                                 3.1 Cyberspace................................................................... 19
                                                                      
                                                                 3.2 The net of nets.............................................................. 20
                                                                      
                                                                 3.3 Think network.............................................................. 20
                                                                      
                                                                 3.4 Information overload.................................................... 21
                                                            4.   The dynamic of science....................................................... 22
                                                            5.   Measuring the digital economy........................................... 23
                                                                      
                                                                 5.1 Virtual guesswork........................................................ 23
                                                                      
                                                                 5.2 Customer convenience................................................. 23
                                                                      
                                                                 5.3 Network effects............................................................ 24
                                                                      
                                                                 5.4 The four layers of internet economics ......................... 24
                                                                      
                                                                 5.5 Definitions.................................................................... 26
                                                                                                                                 3
                  From industrial economics to digital economics
                  II.       Structure-conduct-performance................................................................................29
                            1.   Performance................................................................................................................ 30
                                 1.1    Digital vs. Non-digital goods...........................................................................31
                                              
                                        1.1.1 Non-digital goods...................................................................................31
                                              
                                        1.1.2 Digital goods.......................................................................................... 33
                                              
                                        1.1.3 Additional value.....................................................................................33
                                              
                                        1.1.4 Tradable- and non-tradable goods .........................................................34
                                              
                                        1.1.5 Services.................................................................................................. 34
                                              
                                        1.1.6 Degree of digitality................................................................................35
                                 1.2    Production and allocative efficiency................................................................36
                                 1.3    Progress............................................................................................................ 37
                                 1.4    The ‘good performance’...................................................................................38
                            2.   Digital market structure.............................................................................................. 39
                                 2.1    Big is beautiful? .............................................................................................. 39
                                              
                                        2.1.1 Economies of scale and economies of scope.........................................39
                                        2.1.2  Network effects......................................................................................40
                                        2.1.3  Integrational movements........................................................................41
                                 2.2    Redefinition of industries and competing groups............................................42
                                        2.2.1  IT-classification..................................................................................... 42
                                        2.2.2  Product differentiation...........................................................................43
                                 2.3    Transparency.................................................................................................... 44
                                              
                                        2.3.1 Search engines .......................................................................................44
                                              
                                        2.3.2 Transparency creating patterns..............................................................46
                                 2.4    Barriers of entry............................................................................................... 46
                                        2.4.1  Entering virtual markets.........................................................................46
                                        2.4.2  Making business in virtual markets.......................................................47
                            3.   Conduct ...................................................................................................................... 49
                                 3.1    Money and payment.........................................................................................49
                                        3.1.1  Credit cards and checks .........................................................................50
                                        3.1.2  Electronic cash....................................................................................... 50
                                        3.1.3  Micropayments ......................................................................................51
                                        3.1.4  Smart cards............................................................................................. 51
                                 3.2    Innovation........................................................................................................ 51
                                        3.2.1  Common understanding.........................................................................52
                                        3.2.2  Pace of innovation .................................................................................52
                                 3.3    Pricing behavior............................................................................................... 55
                                        3.3.1  Transparence.......................................................................................... 56
                                        3.3.2  Price discrimination...............................................................................57
                                        3.3.3  Online auctions......................................................................................59
                                        3.3.4  Dynamic pricing.....................................................................................60
                                 3.4    Behavior of firms............................................................................................. 62
                                        3.4.1  Inner-firm management..........................................................................62
                                        3.4.2  Networking between firms.....................................................................62
                                                       
                                               3.4.2.1   Efficiency (Marshallian economies, B2B, Collaboration).....62
                                                       
                                               3.4.2.2   Affiliate programs  .................................................................64
                                                       
                                               3.4.2.3   Dis- and re-intermediation......................................................66
                                                       
                                               3.4.2.4   Trust........................................................................................ 69
                  4