Digitization and the Digital Economy
31 Pages Posted: 23 May 2016
Date Written: May 21, 2016
Abstract
Digitization has economic and policy implications that go deeper and wider than is commonly recognized. Some effects are paradoxical: It extends economic activity to a global level while creating new value at a sub-microscopic level in the creation and exchange of data. At the same time, digitization expands activity at the meso by enabling new services and business models. It takes economies of scale to extremes while expanding the meaning and significance of economies of scope. It has “accelerated” time, transforming business strategies and conventions for learning from the past and planning from present to future. More fundamentally, digitization blurs and surmounts conventional boundaries in space, time, and hierarchical ordering; it challenges assumptions about the nature and structure of transactions, assets, standards, and networks.
The dramatic success of the smartphone, the growth and diversity of multi-sided platforms, and the prominence of Internet giants (“GAFA”) suggest a closer examination of the economic, legal, and policy implications of digitization. In many contexts, the relationship between public and private activity shifts; institutions are confronted by new forms of enterprise that trade on human attention and trust. Digitization not only creates and globalizes markets, it extends markets (often defined by one or two dominant providers) into overlap and contention with neighboring markets. With digital markets affecting social and political values, as well as a vast range of economic interests, policymakers need a clearer understanding of how the digital economy interacts with legacy institutions and policies. This essay describes some core conceptual challenges.
Keywords: digital economy, digitization, public policy, scope
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