1. Marketing as Information in the App Economy: Theory and Challenges for Technological Progress through “Creative Destruction”
Cameron M Weber, Ph.D.
St. John’s University
New York
cameroneconomics.com
Winter 2016

2. Marketing as Information in the App Economy: Theory and Challenges
Marketing as information or persuasion?
If persuasion then marketing creates waste through increasing preferences for consumption (Galbraith 1958, Van Tuinen 2011)
If information then marketing reduces transaction costs and improves market efficiency (common result in the economics of industrial organization)

3. Marketing as Information in the App Economy: Theory and Challenges
Marketing as information or persuasion? (cont.)
Another view is that the economy is 60% “rhetoric” or persuasion.
Deidre McCloskey 1985

4. Marketing as Information in the App Economy: Theory and Challenges
II. Perfect Competition Model, Coase Critique and Theory of the Firm
Perfect competition model (see Supply and Demand graph in equilibrium) assumes perfect information and no transaction costs
Firms emerge to hire and fire labor “at will” in order to react to unknown and unknowable future market conditions; critique of perfect information and no transaction costs (Coase 1937)
The New, Gig, Free-Lance, Sharing, Internet, App Economy reduces information and transactions cost, a technology “shock”

5. Marketing as Information in the App Economy: Theory and Challenges
II. Perfect Competition Model, Coase Critique and Theory of the Firm (cont.)
D. Free-lance, gig, labor means a general demise of the firm?
“At-will” labor usually for two weeks, “gig” labor almost instantaneous
Reduction in labor transaction costs means improved factor mobility and more spontaneous entrepreneurial behaviour than firm contract employment

6. Marketing as Information in the App Economy: Theory and Challenges
III. Sharing economy releases assets for economic growth but faces opposition from vested interests
Decentralized new economy means less easily identifiable sources of political patronage, unionization and taxes
This means that vested interest oftentimes (but not always and everywhere) try to suppress new economy
Creative destruction through the market can make vested interests obsolete

7. Marketing as Information in the App Economy: Theory and Challenges
Examples of App Economy v. Vested Interests
App
Vested Interests Opposed
Uber, Lyft
Taxi Unions, city government politicians, treasuries and regulatory
authorities, public transportation unions
Airbnb
Hotel lobby, city government treasuries and regulatory
authorities, hotel worker labor unions, public housing authorities
Spotify
Publishing companies and unions, corporations with rent-seeking through
intellectual property rights protectionsim
Bitcoin and other
Central banks, treasury departments, commercial banks
alternative currencies

8. Reducing Transactions Costs in the New Economy: Theory and Challenges
III. Sharing economy releases assets and technology for improving standards of living but faces opposition from vested interests (cont.) Examples include: Paris taxi strikes and riots against Uber San Francisco fines against Airbnb New York law against (medium term) rental advertisements IRS declaration of Bitcoin as asset London’s plan to promote “black cab” taxi-drivers as public transportation

9. Marketing as Information in the App Economy: Theory and Challenges for Technological Progress through “Creative Destruction”
III. Sharing economy releases assets and technology for improving standards of living but faces opposition from vested interests (cont.)
Vested interests seek state protection from “destructive” competition, resulting in cartels and oligopolies
Nutter and Einhorn 1969 shows all those with monopoly power in the long-run are those granted protection from competition by the state.

10. Marketing as Information in the App Economy: Theory and Challenges
IV. Factors of Production and Technological Change Factors of production are land, labor, capital and entrepreneurial talent Under new economy, entrepreneurial talent becomes paramount Entrepreneurial talent can explain economic growth unlike the perfect competition equilibrium model

11. Marketing as Information in the App Economy: Theory and Challenges for Technological Progress through “Creative Destruction”
Summary: We may be in a new economy where entrepreneurship as applied to reducing transaction / information costs in new technological platforms can bring increasingly greater standards of living New higher standards of living through the decentralized sharing economy can only be realized through competition, competition which can be thwarted by vested interests opposed to the new economy for self-interested reasons

12. Marketing as Information in the App Economy: Theory and Challenges
Bibliography
Ronald Coase 1937 “Nature of the Firm,” Economica
John Kenneth Galbraith 1958 The Affluent Society, Boston: Houghton Mifflin
Deirdre McCloskey 1985 The Rhetoric of Economics, Madison: University of Wisconsin
G. Warren Nutter and Henry A. Einhorn 1969 Enterprise Monopoly in the United States: , NY: Columbia University Press.
Henk K. Van Tuinen 2011 “The Ignored Manipulation of the Market: Commercial Advertising  and Consumerism Require New Economic Theories and Policies,” Review of Political Economy

13. Marketing as Information in the App Economy: Theory and Challenges
Bibliography (cont.)
Economist 2016 “The World this Week: Hailing a Taxi,” Sept. 17.
James Barron 2016 “Owner of Brooklyn Brownstone Sees Herself Caught in Airbnb Crossfire,” New York Times, Nov. 26.
Jim Harper 2016 “The IRS Just Declared War on Bitcoin Privacy,” Foundation for Economic Education, Nov. 21,
Mark Scott 2016 “Is Uber a Car Service or a Digital Platform?,” New York Times, Nov. 20.
Youtube post: “French taxi strike protesters smash up Courtney Love's cab and take her driver hostage,”
Youtube.com: “Raging taxi drivers clog Philadelphia in anti-Uber protest,”
Youtube.com: “Airbnb Sues San Francisco Over Host Requirements | Tech Bet | CNBC,”