The invention of the computer ushered in an era of unimaginable human capabilities. Technology and the internet led to the creation of new industries while simultaneously destroying others. Along with the expansion of numerous fields, digital technology induced lasting change on economic activities. Only recently have scientists started to understand the scope of this impact as they ask how digitalization influences the economy and what theoretical models no longer apply in a modern context. A task that lies at the heart of this research is determining which facets of the market have changed due to the widespread use of computers and what has remained the same.
Digital goods are items that can be transferred electronically. These products do not adhere to the traditional concept of possessions because they do not occupy physical space. Rather, these items exist as a collection of bytes stored on a computer and are interpretable only through software. This new environment for digital goods creates a dimension of existence that is independent of traditional costs like travel and physical storage. Our interaction with these objects can differ significantly to the ones that inspired Locke and his famous musing on supply and demand. With this in mind, it is important to recognize that modern economics calls for a revamping of old ideas and digitalization should remain at the center of this mission.
“Digital Economics” by Avi Goldfarb and Catherine Tucker divides changes of digital economics into five major areas: search costs, replication costs, transportation costs, tracking costs, and verification costs. They argue that these sections have recently seen significant modifications to their pricing (in the form of reduced costs) and therefore call for re-evaluation of standard theoretical and empirical cost models to account for nuances that arise in this contemporary context. The authors also emphasize the tension between private and public spheres that arises during technological progress. This age-old debate on closed versus opened control is placed in a modern context and elucidates the complexity between personal information and communal knowledge in a digital world. Although Goldfarb and Tucker focus only on costs, their research helps unveil the complexity created by digitalization.
It is with celebrating the progress we have made while also acknowledging the work that remains that we can begin to write policies and regulations adapted to new markets. Protecting freedoms and balancing welfare implications will be two of the largest hurdles in the years to come. Technological transformation has impacted both the economy and numerous economic fields in ways that were once unfathomable. Acknowledging and analyzing these shifts are key to our future.
Goldfarb, Avi, and Catherine Tucker. 2019. “Digital Economics.” Journal of Economic Literature, 57 (1): 3-43