The Digital Economy Discussion Paper - Research Proposal Example

The Digital Economy Discussion Paper Name Date Course THE DIGITAL ECONOMY DISCUSSION PAPER Literature Review According to Drnevich & Croson (2013) digital economy refers to markets that focus on digital technologies and entails trading information goods or services through electronic commerce. Digital economy is thus the global network of economic and social activities enabled through platforms like sensor networks, internet and even mobile phones and compromises the internet maps that people access and the web searches people utilize in locating information. Digital economy operates on layered base, with separate fragments for transporting data and applications. The extensive embracing of consumer infocomm technologies like social media as well as mobile telephony, along with the increased adoption of online activities such as electronic shopping, e-banking, in addition to content sharing have resulted to the digital economy (Pagani, 2013). As Haucap & Heimeshoff (2014) explain, digital economy is an important sector which drives very extensive growth and the effect of digital economy goes beyond information goods and services and data transportation and numerous application markets have turned out to be more concentrated and as a result competition issues have emerged within digital economy. Competition within digital markets has specific distinct features that include inclinations toward “winner takes all” competition for the market, network impacts, rapid innovations, increased investment rates and two sided market. The cyclic feature of competition implies that successful digital platforms have a tendency of acquiring major through momentary market power. As a result, dynamic competition founded on constant sequence of innovation, development as well as interruption is dominant within the digital economy (Sire & Rieder, 2014). Competition within key digital markets mostly involves distinct form. First, competition between business forms or internet platforms such as Facebook is more vital than competition in business form since competition in the platforms mostly results to a “winner takes all” outcome which means that dominance and monopoly can be the practically expected outcome of success. Again, digital markets are normally typified by strong network effects and economies of scale and this underpin the dominance or monopoly aspect (Sire & Rieder, 2014). Thirdly, digital markets are two-sided which means that two or more user groups gain from using the digital platforms. For instance, search engines are utilized by people in accessing information through the internet as well as the advertisers when accessing viewers. Fourthly, with the increasing interconnection in digital economy, a level of synchronization and cooperation between companies is inevitable and actually pro-competitive (Sire & Rieder, 2014). Additionally, high investment and innovation rates typify digital markets that result to fast technological advancement within the sector and as a result successful companies might acquire considerable market power leading to dominance because competition often results to monopoly. As Haucap & Heimeshoff (2014) implies, extensive user participation in digital markets can facilitate monopoly where companies and internet platforms maintain a leading position in the market through development of products and services that closely correspond with the needs of internet users and customers. The suitable scope of competition within digital markets appears to be a contentious issue due to bias in digital players such as Google (Haucap & Heimeshoff, 2014). Network effects surface where the value of product and its users rises in correspondence with the number of other users of the product. As a result, a form of biased demand for the product due to economies of scale arises and the effects can be indirect or direct. Network effects as seen in Sire & Rieder (2014) in the case of Google surface often within digital markets where the rising popularity of an internet platform attracts more users along with other groups like advertisers or even application developers to the internet platform. This therefore leads to an unfavorable effect on competition because it brings on barriers to entry and can also lead to rise in switching costs. Consequently, some platforms can end up being in a lock in situation which makes a single platform to emerge as the dominant one leading to monopoly as seen in Google. In most case, companies and platforms that benefit from network effects exploit the network effects in order to further strengthen market dominance leading to further monopolization (Haucap & Heimeshoff, 2014). Critical Reflection Digital economy has become an issue of economic inevitability in many businesses. For many businesses to stay competitive and to carry out business competently, they have adopted electronic methods for their business processes such as business transactions, facilitating better interactions with clients, promoting products and services and also for conducting internal processes more competently. In digital economy, innovation and adaptation are the key features of competitive advantage. Digital services facilitate higher level of collaborative working and the technologies provide new opportunities to meet customer needs and all these are basis for efficacies (Pagani, 2013). The use of search engines in locating information is a fundamental aspect in digital economy. With more information becoming more addressable through search engines, the capacity to filter the vital data and information can be utilized as a fundamental management tool. This can be achieved by firms learning search patterns of the users and identifying sites and platforms that are searched often and perceived as preferred sources of information since this can facilitate a more targeted search results (Kohli, & Grover, 2008). Technologies within digital economy are focusing on the enrichment of the user experience as well as the power of social media platforms. For instance, social media metrics have gained a lot of attention since firms have realized that the unstructured data in social media platform provides vital insights into behavior and expectations of consumes. The convergence of technologies in digital economy has created a more seamless and instinctive user experience and the occurrence within the digital economic landscape is the dual role that both the content consumers and content producers play (Van, 2009). This has lead to development of a virtuous cycle that is being leveraged by businesses and society for greater benefits and this taking advantage of this virtuous cycle is what has led to big companies and internet platforms such as Google having a competitive advantage and maintaining a leading position in the market and hence monopoly (Haucap & Heimeshoff, 2014). With the emergence of digital era, information and communication technology have become key determinants of organization’s success. Therefore, firms that possess advanced technologies have advantageous opportunities of becoming leading and dominant in the digital economy which lead to such firms taking advantages of the opportunities to become more dominant leading to unfair competition (El Sawy & Pavlou, 2010). As studies indicate, direct network effects result when there is interaction among product users and hence having a higher number of users makes the product more valuable. This is what has lead to high value of platforms such as Facebook and Twitter. For instance in social media, the higher the number of users on the network, the higher the attractiveness of the social media platform is. On the other hand, indirect network effects result when increased utilization rates for a product increase its demand to another group and as a result there are indirect benefits for the primary users of the product (Kohli & Grover, 2008). In search engines such as Google, supply side economies of scale can result where elevated data from users results to more exact search algorithms which obviously give the most accurate search engine a competitive edge (Sire & Rieder, 2014). However, network effects are somehow pro-competition because they play a role in improving the quality and value of a product for the users as well as other groups. The important thing is to ensure that platforms and firms that gain from network effects do not use them in strengthening market dominance. The observed dominance and monopoly in digital economy provides the need to protect competitive structures that compel innovation in digital economy because this will discourage exclusionary behavior and unfair dominance that prevents genuine competition. Going with the significance of dynamic competition within the digital economy, and in particular the necessity to preserve incentives for innovation and investment, regulatory intervention might not be the appropriate solution to counter the dominance and monopoly of some firms and platforms in digital economy (Sire & Rieder, 2014). This is because unsuitable or extreme intervention can end up harming the competition instead of protecting it. However, competition law might play an important role in digital economy since it can stop and prevent anticompetitive behavior that can hinder dynamic competition. For example, the competition law can be used in holding up problems that dominant platforms cause or the misuse of an applications developer‘s investment by a platform owner. With the dynamic competition that exists between various internet platforms within several digital markets, determining the point at which a platform or a company is deemed as dominant is difficult. This is because there are still powerful companies and platforms that are not yet dominant within the market position and are still involved in unfair trade practices (El Sawy & Pavlou, 2010). As mentioned before, as much as the unfair dominance and monopoly in digital economy is an issue that needs to be addressed, dynamic considerations are critical due to the necessity of balancing the risk that attempts to stop the dominance can hinder more pro-competitive developments against the risk that dominance and monopoly might end up being entrenched (Haucap & Heimeshoff, 2014). One possible solution to prevent and hinder unfair competition and hence monopoly in digital economy is through monitoring of the digital economy by the competition authorities (El Sawy, & Pavlou, 2010). Even though numerous major players within the digital economy are very big and profitable companies, the dynamic competition among these companies along with the cyclic nature of competition within the digital markets normally makes permanent dominance and persistent monopoly indefinable. As a result, since it is difficult to determine dominance, the anticompetitive behavior among firms and internet platforms should be addressed by regulation of the unfair trade practices. The anticompetitive behavior in digital economy which can involve anticompetitive attempts to monopolize the market can be addressed by competition laws that are adequately flexible for their application within digital markets (El Sawy, & Pavlou, 2010). Research Scope More research should be done in order to have a more refined and in depth understanding of digital resources and the role they play in regard to creating and capturing value as well as distributing business value among partner organizations in emerging world of digital economy. Secondly, the capacity of internet in connecting and communication has caused the most noteworthy current influence of internet through social media. Social media is built on Web 2.0 technologies and hence offers space for deep social interaction, building communities as well as handling collaborative projects. Additionally, social media allows users to establish groups of common interest (Carr, 2010). As a result, it will be necessary for more research to be conducted to establish how businesses in digital economy can utilize the opportunity by accessing enormous markets available in social media networks because millions of people are able to even access social networks using their mobile phones. More importantly, social media promotes user generated content and hence research should be carried out regarding the social drivers that promote increased participation in user content generation as this can allow businesses to leverage activities that of participants and users to advance their business interests and those of the users as well (Carr, 2010). The major driver of economic competitiveness in the digital economy is leading in both information technology and advanced networking and thus there is need for more research on the latest technologies. Since applications economy in digital world allow software developers to directly access the mass consumer market, research should be done on how small companies can have a similar playing field with large companies such as Google and enable them to leverage the current advantages in within the global digital economy (Drnevich & Croson, 2013). Lastly, the social economy is facilitated using the higher level of trust as compared to the default anonymous nature of internet. The enormous size of population and reach that social network platforms offer provide vital aspects to support social economy and hence more should be done to establish how technology advancements can be used in creating quality life that accords socio-economic aspirations to ensure that the full potential of internet is maximized to fulfill the promise the digital economy presents (Haan & Sonck, 2012). References Carr, N., 2010, The shallows: How the Internet is Changing the Way We Think, Read and Remember, London: Atlantic Books. Drnevich, P & Croson, D, 2013, Information Technology and Business-Level Strategy: Toward an Integrated Theoretical Perspective, MIS Quarterly, 37(2), pp. 483-509. El Sawy, A & Pavlou P., 2010, From IT Leveraging Competence to Competitive Advantage in Turbulent Environments, Information Systems Research, 17(3): 198-227. Haan, J & Sonck, N., 2012, Digital Skills in Perspective: A Critical Reflection on Research and Policy, Media Studies, 3(6):125-136. Haucap, J & Heimeshoff, U., 2014, Google, Amazon, Facebook, eBay: Is the Internet Driving Competition or Market Monopolization, Int Econ Econ Policy, 11(41-69). Kohli, R & Grover, V., 2008, Business Value of IT: An Essay on Expanding Research Directions to Keep up with the Times, Journal of the Association for Information Systems, 9 (1): 23-39. Pagani, M., 2013, Digital Business Strategy and Value Creation: Framing the Dynamic Cycle of Control Points, MIS Quarterly, 37(2): 617-632. Sire, G & Rieder, B., 2014, Conflicts of Interests and Incentives to Bias: A Microeconomic Critique to Google’s tangled Position on the Web, New Media & Society, 16(2): 195-211. Van A., 2009, Improving digital skills for the Use of online Public Information and services, Government Information Quarterly, 26 (2): 333-340. Read More

Again, digital markets are normally typified by strong network effects and economies of scale and this underpin the dominance or monopoly aspect (Sire & Rieder, 2014). Thirdly, digital markets are two-sided which means that two or more user groups gain from using the digital platforms. For instance, search engines are utilized by people in accessing information through the internet as well as the advertisers when accessing viewers. Fourthly, with the increasing interconnection in digital economy, a level of synchronization and cooperation between companies is inevitable and actually pro-competitive (Sire & Rieder, 2014).

Additionally, high investment and innovation rates typify digital markets that result to fast technological advancement within the sector and as a result successful companies might acquire considerable market power leading to dominance because competition often results to monopoly. As Haucap & Heimeshoff (2014) implies, extensive user participation in digital markets can facilitate monopoly where companies and internet platforms maintain a leading position in the market through development of products and services that closely correspond with the needs of internet users and customers.

The suitable scope of competition within digital markets appears to be a contentious issue due to bias in digital players such as Google (Haucap & Heimeshoff, 2014). Network effects surface where the value of product and its users rises in correspondence with the number of other users of the product. As a result, a form of biased demand for the product due to economies of scale arises and the effects can be indirect or direct. Network effects as seen in Sire & Rieder (2014) in the case of Google surface often within digital markets where the rising popularity of an internet platform attracts more users along with other groups like advertisers or even application developers to the internet platform.

This therefore leads to an unfavorable effect on competition because it brings on barriers to entry and can also lead to rise in switching costs. Consequently, some platforms can end up being in a lock in situation which makes a single platform to emerge as the dominant one leading to monopoly as seen in Google. In most case, companies and platforms that benefit from network effects exploit the network effects in order to further strengthen market dominance leading to further monopolization (Haucap & Heimeshoff, 2014).

Critical Reflection Digital economy has become an issue of economic inevitability in many businesses. For many businesses to stay competitive and to carry out business competently, they have adopted electronic methods for their business processes such as business transactions, facilitating better interactions with clients, promoting products and services and also for conducting internal processes more competently. In digital economy, innovation and adaptation are the key features of competitive advantage.

Digital services facilitate higher level of collaborative working and the technologies provide new opportunities to meet customer needs and all these are basis for efficacies (Pagani, 2013). The use of search engines in locating information is a fundamental aspect in digital economy. With more information becoming more addressable through search engines, the capacity to filter the vital data and information can be utilized as a fundamental management tool. This can be achieved by firms learning search patterns of the users and identifying sites and platforms that are searched often and perceived as preferred sources of information since this can facilitate a more targeted search results (Kohli, & Grover, 2008).

Technologies within digital economy are focusing on the enrichment of the user experience as well as the power of social media platforms. For instance, social media metrics have gained a lot of attention since firms have realized that the unstructured data in social media platform provides vital insights into behavior and expectations of consumes.

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