Ilkka Kiema Future Internet and Economics (FIEN) Workshop May 6, 2009 Some Economic Aspects of Future Internet

On the contents of this presentation The research topics of the FIEN project will be given a precise specification only after its size and organization have been determined and its staff has been elected. Below I shall review some possible research topics for the FIEN project that:  were suggested in the research proposal of the Future Internet and Economics project; or  have emerged during the FIEN discussions and teaching.

The Future Internet Backbone, and Internet Operators The price of storing information decreases faster than the price of transmitting information, and this puts increasing requirements on Internet operators.  Should the Internet backbone be privately or publicly owned?  What are the optimal contracts between the backbone operators, the other Internet operators, and the providers of the rest of the necessary infrastructure? How to balance the aims of  Using the available resources as efficiently as possible; and  Not blocking the entry of new actors into the Internet operator market.  What are the sensible business models for an Internet operator? Which complementary products could it offer?

The Economics of Privacy  To which extent should firms be allowed to discriminate between consumers on the basis of their consumer profiles?  Who owns the profiles of consumers?  Should firms be allowed to sell the profiles of their consumers to other firms?  Conversely, should a consumer be allowed to take her profile information with her, when she starts using the services of a competing firm?  On an efficiently functioning market, consumers do not wish to manipulate their profiles; how can this condition be met?  Consumers might also wish to remain anonymous, in which case destroying all information concerning them would constitute a competitive advantage; how does the “market for privacy” function?

Identifying Information by Contents, rather than by Location An essential new feature which the future Internet is anticipated to have is that in information would be identifiable by its contents, so that contents could be loaded from the location at which it is most readily available.  How do markets for information which has been produced and copyrighted by others function?  How does one provide incentives for distributing such information and keep the transaction costs on a sensible level?  What are the optimal ways to make contracts between firms which exchange information on a large scale?

Migration Strategy The migration strategy which leads from the current Internet to a new Internet poses both engineering and economic problems:  How does one provide incentives for a transition to a new Internet?  Could consumers actually prefer to have two separate forms of Internet access (e.g., a safer one for accessing bank accounts, and a more familiar one for other purposes)?  What would be a sufficient critical mass for starting the positive feedback loop which establishes a new Internet? Would a single country, a single university, or perhaps a network which connects several universities (such as the FUNET) be sufficient?

The New Internet and Business Models The FIEN project could also address:  The effects of the Internet on the incentives to produce information goods.  The effects of the Internet on the more traditional ways to distribute information goods (e.g. the recording industry, newspapers).  The new business models and the new ways of producing information goods which have been made possible by the Internet.

The Effects of Piracy and Sharing  Internet has made both legal sharing and piracy of information goods easier, and this has a direct negative effect on the profits of copyright owners.  However, it has been argued that the negative effects of piracy might be balanced by positive effects when:  Information goods are subject to network externalities.  The copyright owner can charge a higher price for the shared copies of the information good and appropriate indirectly a part of the revenue lost by copying.  The demand for complementary products (e.g. the concerts of an artist) is increased by piracy  The demand for complementary products (e.g. the concerts of an artist) is increased by piracy. he possibility of sampling increases the consumers’ willingness to pay for their preferred products.  The possibility of sampling increases the consumers’ willingness to pay for their preferred products.

The new business models The obvious examples of the new business models based on the Internet include:  Internet auctions and reverse auctions.  The Internet games.  The new forms of advertising which are made possible by the information concerning consumers’ usage of Internet. More dramatically, the OS model of developing software constitutes an altogether new way of producing information goods.

Some other topics: the New Internet and its individual users  The problem of “information overload” and the technologies for reducing it.  The ways in which Internet creates communities and in which individuals regulate their public image via the Internet.  The effects of improved mobility and the new, more dynamic ways of using the Internet.