A modest proposal (involving digital market dynamics)

One of the best books about the effect of digital technology on business dates from 1999. It’s Information Rules: A Strategic Guide to the Network Economy by Carl Shapiro and Hal Varian (now chief economist at Google). Until recently, I’ve thought it didn’t need updating, for although the examples are obviously dated, the principles are not.

Information Rules: A Strategic Guide to the Network Economy

However, a couple of excellent recent books on the telecommunications and media sector have made me start to wish for an update of Information Rules. They are Timothy Wu’s The Master Switch: The Rise and Fall of Information Empires and Susan Crawford’s new book, Captive Audience: The Telecom Industry and Monopoly Power in the New Gilded Age. Telecoms is obviously a network industry, with the characteristic kind of increasing returns to scale you get with networks.

The Master Switch: The Rise and Fall of Information Empires

Captive Audience: The Telecom Industry and Monopoly Power in the New Gilded Age

Both these newer books are excellent on the sector. What I’d like is an update – beyond the one chapter in the 1999 edition of Shapiro and Varian – on business strategy and market dynamics (including two-sided aspects) in network markets. For digital connectivity is making the network aspect more prominent in other sectors. Finance is obviously one, but there are more sectors where digital technologies are enabling new forms of intermediation as well as disintermediating old forms, where there are information asymmetries or experience goods, and where access to new platforms is becoming vital. Consider publishing, or indeed even retailing – say a new fashion designer facing a declining physical high street.

So here’s a modest proposal: please will somebody write about these new market dynamics (and the competition and distributional implications) where we need two-sided market models, increasing returns and non-linearities, and the experience good/public good characteristics taken into account?!


Are ideas catching?

This interesting paper, Germs, Social Networks and Growth, uses a network model to explore the diffusion of technologies – ideas – in different kinds of society: an open, individualist one compared to a collectivist one with fewer external contacts. The authors, Alessandra Fogli and Laura Veldkamp, sum it up thus:

“Our theory for why some societies have growth-inhibiting social structures revolves around the idea that communicable diseases and technologies spread in similar ways – through human contact. We explore an evolutionary model, where some people favor local “collectivist” social networks and others do not. People who form collectives are friends with each others’ friends. The collective has fewer links with the rest of the community. This limited connectivity reduces the risk of an infection entering the collective, allowing the participants to live longer. But it also restricts the group’s exposure to new technologies. An individualist social network with fewer mutual friendships speeds the arrival of new technologies, which increases one’s expected economic success and favors reproductive success.”

What’s more, the type of society is endogenous:

“In countries where communicable diseases are inherently more prevalent,the high risk of infection for individualists makes the individualist trait die out. A collectivist social structure that inhibits the spread of disease and technology will emerge. In countries where communicable diseases are less prevalent, the collectivist types will be less economically and reproductively successful. Greater reproductive success of individualists causes the network to become fully individualist.”

They test the model using historical data on technology diffusion and epidemics, and find a strong link between individualism and productivity growth driven by technology adoption.

This work touches on a number of economic literatures: on technology diffusion; on social capital; on the effects of culture on growth; and on the role of institutions in development.  It’s a very interesting paper, and reminded me of two wonderful books. One is obviously Jard Diamond’s Guns, Germs and Steel, although the argument is obviously a twist on Diamond’s case that European explorers took diseases into previously isolated populations. The other – for the metaphor of viral ideas – is Neal Stephenson’s brilliant novel Snow Crash.

Guns, Germs and Steel: A short history of everybody for the last 13,000 years

Snow Crash


Female talent meets male brains

What if anything can evolutionary theory tell us about the explanation for gender disparities in the workplace? According to a fascinating new book, The War of the Sexes: How Conflict and Co-operation Have Shaped Men and Women from Prehistory to the Present, by Paul Seabright, a pre-historic division of labour between men and women resulted in economic inequalities that have lasted until now for two reasons.

One is that women have different preferences, having a wider set of goals in life, and choose to work fewer hours and take career breaks. “These choices have an adverse effect on women’s advancement not just in the child-rearing years but for decades afterwards.” The unfair economic penalty women pay for this difference in preferences is amplified by the fact that men are rewarded for bargaining aggressively over pay, whereas women are not. (Linda Babcock’s excellent book, Women Don’t Ask, also looked at this specific dilemma.)

The second is that there are small differences in the way men and women network, partly as the result of women leaving the workforce for some years, so that women less likely than equally talented men to have a connection with the powerful people in the workplace that can be exploited for advancement.

Although these disadvantages are rooted in our ancient evolutionary history and legitimised by long custom, the book is mildly optimistic (because of increased demand for skilled labour) about overcoming the ancient disadvantages of sexual selection. Not that it offers public policy recommendations. Rather, the advice is directed at individual women, with suggestions for signalling talent more clearly to even the most antediluvian employers.The bottleneck for women’s talent is the limited attention in other people’s (men’s) brains, so the key is being known and noticed. Scarce attention has been an interest of Paul Seabright’s for a while now – see his recent Princeton in Europe lecture and the earlier Toulouse School of Economics workshop (pdf) – while the linking of anthropology and evolutionary theory to economics dates back to his previous book, The Company of Strangers. Like that book, The War of the Sexes is a fascinating read. I love its interdisciplinarity. I’m just not sure that it persuades me to be even mildly optimistic about improving economic justice for women, given the record of what happens when male brains confront female talent.

The War of the Sexes: How Conflict and Cooperation Have Shaped Men and Women from Prehistory to the Present