Cambridge University Press
978-0-521-85591-4 - Internet and Digital Economics - Edited by Eric Brousseau and Nicolas Curien
Frontmatter/Prelims

Internet and Digital Economics
Principles, Methods and Applications

How are our societies being transformed by Internet and digital economics? This book provides an accessible introduction to the economics of the Internet and a comprehensive account of the mechanisms of the digital economy. Leading scholars examine the original economic and business models being developed as a result of the Internet system, and explore their impact on our economies and societies. Key issues are analyzed, including the development of open source software and online communities, peer-to-peer and online sharing of cultural goods, electronic markets and the rise of new information intermediaries, e-retailing and e-banking. The volume examines how Internet and digital economics have transformed the organization of firms, industries, markets, commerce, modes of distribution, money, finance, and innovation processes, and provides the analytical tools to understand both these recent transformations and the likely future directions of the “New Economy.”

ERIC BROUSSEAU is Professor of Economics at the University of Paris X.

NICOLAS CURIEN serves as Commissioner for the French Regulation Commission for Electronic Communications and Postal Services (ARCEP). He is also Professor of Economics at the Conservatoire National des Arts et Métiers, Paris.

Internet and Digital Economics

edited by

Eric Brousseau and Nicolas Curien

CAMBRIDGE UNIVERSITY PRESS
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Cambridge University Press
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Published in the United States of America by Cambridge University Press,
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This publication is in copyright. Subject to statutory exception
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the written permission of Cambridge University Press.

First published 2007

Printed in the United Kingdom at the University Press, Cambridge

A catalogue record for this publication is available from the British Library

Library of Congress Cataloguing in Publication data

Internet and digital economics / edited by Eric Brousseau and Nicolas Curien.
          p. cm.
      Includes bibliographical references and index.
      ISBN-13: 978-0-521-85591-4 (hardback : alk. paper)
      ISBN-10: 0-521-85591-8 (hardback : alk. paper)
1.  Internet–Economic aspects. 2. Information technology–Economic
aspects. I. Brousseau, Eric. II. Curien, Nicolas. III. Title.
      HC79.I55I587 2006
      384.3–dc22
2006010015

ISBN 978-0-521-85591-4 hardback

Cambridge University Press has no responsibility for
the persistence or accuracy of URLs for external or
third-party internet websites referred to in this book,
and does not guarantee that any content on such
websites is, or will remain, accurate or appropriate.

To Delphine

List of figures		page x
List of tables		xiii
Notes on contributors		xiv
Acknowledgements		xxv

1	Internet economics, digital economics ERIC BROUSSEAU AND NICOLAS CURIEN	1

Part I Toward a new economy?		57
2	Evolution of the new economy business model WILLIAM LAZONICK	59
3	Discourse on the new economy – passing fad or mobilizing ideology? PATRICE FLICHY	114
4	The Internet boom in a corporate finance retrospective ULRICH HEGE AND SÉBASTIEN MICHENAUD	142

Part II On-line communities		171
5	Information goods and online communities MICHEL GENSOLLEN	173
6	Online consumer communities: escaping the tragedy of the digital commons NICOLAS CURIEN, EMMANUELLE FAUCHART, GILBERT LAFFOND AND FRANÇOIS MOREAU	201
7	Network cooperation and incentives within online communities GODEFROY DANG NGUYEN AND THIERRY PÉNARD	220

Part III Network externalities and market microstructures		237
8	The Internet and network economics NICHOLAS ECONOMIDES	239
9	E-commerce, two-sided markets and info-mediation ALEX GAUDEUL AND BRUNO JULLIEN	268
10	The economics and business models of prescription in the Internet PIERRE-JEAN BENGHOZI AND THOMAS PARIS	291

Part IV Producing, distributing and sharing information goods		311
11	Bundling and competition on the Internet YANNIS BAKOS AND ERIK BRYNJOLFSSON	313
12	Pricing information goods: free vs. pay content MARC BOURREAU AND VIRGINIE LETHIAIS	345
13	Open software: knowledge openness and cooperation in cyberspace DOMINIQUE FORAY, SYLVIE THORON AND JEAN-BENOÎT ZIMMERMANN	368
14	Simulating code growth in Libre (open source) mode JEAN-MICHEL DALLE AND PAUL A. DAVID	391

Part V How e-markets perform		423
15	Economic insights from Internet auctions PATRICK BAJARI AND ALI HORTAÇSU	425
16	Consumer search and pricing behavior in Internet markets MAARTEN C. W. JANSSEN, JOSÉ LUIS MORAGA-GONZÁLEZ AND MATTHIJS R. WILDENBEEST	460
17	Are neighbors welcome? E-buyer search, price competition and coalition strategy in Internet retailing JACQUES LAYE AND HERVÉ TANGUY	484
18	Bidding and buying on the same site MARC BOURREAU AND CHRISTIAN LICOPPE	510

Part VI Evolving institutional infrastructures		537
19	An economic analysis of conflicts resolution in cyberspace BRUNO DEFFAINS, YANNICK GABUTHY AND PHILIPPE FENOGLIO	539
20	Payment and the Internet: issues and research perspectives in economics of banking DAVID BOUNIE AND PIERRE GAZÉ	569
21	Electronization of Nasdaq: will market makers survive? DELPHINE SABOURIN AND THOMAS SERVAL	588
22	Multi-level governance of the digital space: does a “second rank” institutional framework exist? ERIC BROUSSEAU	617

Part VII The impacts of the Internet at the macro level		649
23	Mobile telephony and Internet growth: impacts on consumer welfare GARY MADDEN, MICHAEL SCHIPP AND JOACHIM TAN	651
24	Globalization, the Internet and e-business: convergence or divergence in cross-country trends? KENNETH L. KRAEMER AND JASON DEDRICK	663
25	ICTs and inequalities: the digital divide ALAIN RALLET AND FABRICE ROCHELANDET	693

References		718
Index		777

Figures

2.1	Cisco's stock options, 1990–2004	page 91
2.2	Relative importance of objectives of ongoing stock option programs, ICT companies operating in the United States, 1996–2003	98
2.3	Semiconductor employees (full-time) Silicon Valley, Route 128, Dallas, USA 1994–2002	100
2.4	Average real annual earnings, full-time employees, semiconductors, Silicon Valley, Route 128, Dallas, USA 1994–2002	100
2.5	Software publisher employees (full-time), Silicon Valley, Route 128, Dallas, USA 1994–2002	101
2.6	Average real annual earnings, full-time employees, software publishers, Silicon Valley, Route 128, Dallas, USA 1994–2002	101
2.7	IBM's profit rate, rate of R&D spending, and payout behavior, 1981–2003	105
2.8	US patenting, IBM, leading Japanese electronics companies, and other top 10 patenters, 1989–2004	106
2.9	IBM's stock options, 1982–2003	109
2.10	Stock price movements, Cisco, Lucent, AT&T, and IBM compared with the S&P500 and Nasdaq indices	110
4.1	Venture capital funding in the United States and share of Internet start-ups	144
4.2	Total number of IPOs, share of Internet IPOs and first-day returns	165
8.1	An information superhighway	243
8.2	A simple star network	243
8.3	A simple local and long-distance network	244
8.4	A pair of vertically related markets	245
8.5	Construction of the fulfilled expectations demand	250
8.6	Monopolistic competition with network externalities and M compatible goods	252