Archive for the ‘Economics’ tag
Picking up from where I left off last week – I want to shift the focus firmly onto the impact of the Web/Internet on business competition as I move on from broad principles of management/economics to specifics. The examples used below are taken from Boddy’s ‘Management, An Introduction’.
I kick off with a consideration of Google as an illustration of the impact that the Web/Internet has had on competition between businesses. Google exemplifies a company created to use the Web/Internet – it is a pure e-business company built entirely around information technology. Since the search engine serve is free, it generates revenues by providing advertisers with the opportunity to deliver online advertising that is relevant to search results on a page. The advertisements are displayed as sponsored links, with the message appearing alongside search results for appropriate keywords. They are priced on a cost-per-impression basis, whereby advertisers pay a fixed amount each time their ad is viewed. The charge depends on what the advertiser has bid for the keywords, and the more they bid the nearer the top of the page their advertisement will be. Google has rapidly expanded the range of services it offers.
Pure e-businesses such as Google which focuses on search processes (other examples include easyGroup which exclusively sells its services online and eBay which facilitates online transactions) can be contrasted with companies existing before the Web/Internet but which use it to support many of their activities. They may still perform the same functions, but the Web/Internet often enables them to offer new services through an additional distribution channel online (such as banks).
As well as offering new ways of doing business, the Web/Internet also affects the way services are created and delivered. Examples include: delivering media content; satellite freight tracking services; and, social networking sites. Picking up on this last example in particular, social networking sites (types of community systems) enabling people to exchange information have grown very quickly. Setting up blogs is one major use, as are websites through which people with particular interests exchange information. They are significant for businesses even if they extend beyond the firm, since customers can use them to exchange positive or negative information about the company. These applications affect the strategy and competiveness of organization.
The publishing industry (compare music, film and journalism) is an example of a business model founded on information (its gathering, processing and dissemination) for whom the Web is the biggest threat. As digitisation and the Web have reduced the cost of the dissemination of information, it undermines the value proposition of those industries built on its premise.
There is also an internal business impact of the Web in terms of changing various aspects of organisational activity. Common information systems based on the Web/Internet move information between organizations, often having direct links with customers. This is part of a broader assessment of how information technology, in general, is affecting the way that business is carried out.
One way to consider the impact of the Web/Internet on business is by geographic reach. Inter-organisational information systems link organisations electronically by using networks that transcend company boundaries. They enable firms to incorporate buyers, suppliers and partners in the redesign of their key business processes, thereby enhancing productivity, quality, speed and flexibility. New distribution channels can be created and new information-based products and services can be delivered. In addition, many information systems radically alter the balance of power in buyer-supplier relationships, raise barriers to entry and exit and, in many instances, shift the competitive position of industry participants.
From an alternative perspective as an information system, the Web/Internet has had wide effects on managing data, information and knowledge. It can, for example, be used to integrate processes, from suppliers through to customer delivery. Managers must ensure that their organisation makes profitable use of the possibilities that the Web/Internet offers in a way that suits their particular business; and, not just as a technology challenge, but also as a ‘people challenge’. For example, network systems help people to communicate and interact with each other, but they do not define how they should do so (such as who should gain access to which part of the system or who is responsible for responding to customer comments on a blog – these are matters to be implemented and modified in the light of experience).
A useful distinction can be made between intranets and extranets. The former is a private computer network operating within an organisation, using Web/Internet standards and protocols and security protected. An extranet is a closed, collaborative network that uses the Web/Internet to link businesses with specified suppliers, customers or other trading partners. It can be linked to business intranets where information is accessible through a password system.
The simplest Web/Internet applications provide information, enabling customers to view products or other information on a company website; conversely, suppliers use their website to show customers what they can offer. Web/Internet marketplaces are developing in which groups of suppliers in the same industry operate a collective website, making it easier for potential customers to compare terms through a single portal. The next stage is to use the Web/Internet for interaction. Customers enter information and questions about, say, offers and prices. The system then uses the customer information, such as preferred dates and times of travel, to show availability and costs.
Another use is for transactions, when customers buy goods and services through a supplier’s website. Conversely a supplier who sees a purchasing requirement from a business (perhaps expressed as a purchase order on the website) can agree electronically to meet the order. The whole transaction, from accessing information through ordering, delivery and payment, can take place electronically.
Finally, a company achieves integration when it links its own information system to customers and suppliers: it becomes an e-business. Dell Computing is an example. Other companies use the Web/Internet to create and orchestrate active customer communications (e.g. Kraft, Intel and Apple). These communications enable companies to become closer to their customers and to learn how best to improve a product/service much more quickly than is possible through conventional market research techniques.
In conclusion, the Web/Internet is radically challenging many established ways of doing business. Combined with political change, this is creating a wider, often global, market for many goods and services.
Next week, in my final post, I will round up on the topics of e-commerce and e-business and the associated challenges faced by businesses in managing innovation and change.
This week I start by looking at business strategy from the perspective of economics. There are basic economic principles underpinning the determination, choice and evaluation of business strategy.
As mentioned in my post on management studies from a few weeks’ back, right strategies (the ways in which organizations address their fundamental challenges over the medium to long-term) are crucial for businesses to survive and beat the competition. Strategic-minded thinking includes comprehensive consideration and reflection upon a business’ mission statement and its vision. For both economists and management theorists, therefore, the aims of a business determines its strategy. Equally relevant, however, for both disciplines are internal capabilities and industry structure/conditions.
Like management theory, economists adopt Porter’s five forces model of competition (Michael Porter, Competitive Strategy: Techniques for Analyzing Industries and Competitors, 1980) which set out to identify those factors which are likely to affect an organization’s competitiveness. These five forces are:
• The bargaining power of suppliers
• The bargaining power of buyers
• The threat of potential new entrants
• The threat of substitutes
• The extent of competitive rivalry
I will be returning to these five forces next week in the context of considering, specifically, how they apply to the effects of the Web. In the meantime, it is worth pointing out that the five forces model does have limitations. For example, it is a largely static model whereas conditions change over time requiring strategy to evolve over time. Notably, also, Porter’s model suggests that success is dependent on competition rather than the potential for collaboration and cooperation (such as with those downstream vertically from a supplier).
Value chain analysis is also closely linked to the five forces model (according to the definition of Sloman, Hinde and Garratt, value chain “shows how value is added to a product as it moves through each stage of production from the raw material stage to its purchase by the final consumer”). Analysis of the value chain involves evaluating how each of the various operations within and around an organization contributes to the competitive position of the business). Ultimately it is these value-creating activities, which can be primary or support activities, that shape a firm’s strategic capabilities.
Turning to growth strategy, it is worth making a nod here to vertical integration (this will become more relevant when considering the effects of the Web in facilitating disintermediation of value chains over the next two weeks). There are a variety of reasons why forward or backward vertical integration might lead to cost savings (such as through economies of scope and scale), including: production economies; coordination economies; managerial economies; and financial economies. The major problem with vertical integration as a form of expansion is that the security it gives the business may reduce its ability to respond to changing market demands.
Other points of comparison and dissimilarity between management and economics can start to be drawn. For example, a point of difference is economics’ focus on theories related to short-term/long-term profit maximization. There is much debate among economists about whether profit-maximizing theories of the firm are unrealistic (largely due to a lack of information or lack of motivation). This focus is where costs concepts and graphs (demand curves in particular) come in.
A more practical illustration given by Sloman, Hinde and Garratt in respect of the search for profits is the video games war where there are high costs, but also high rewards, from a long-term perspective. In considering the secret of success in the market, online gaming capability and global connectivity are significant factors. Moreover, connection to the internet has facilitated a move towards the use of consoles as ‘digital entertainment centres’, in which users can download content. These developments are likely to continue as long as broadband internet connectivity improves and remains fairly cheap to use.
Finally, in economics, there are various theories of strategic choice (such as cost leadership, differentiation and focus strategy). These strategies can be combined. For example, Amazon had a clear niche market focus strategy – to sell books at knockdown prices to online customers – and this has become a mass market with the spread of the Web and due to lower costs.
Next week, I want to move the focus firmly onto the impact of the Web on business competition as I move on from broad principles of management/economics to specifics. I will kick off with a consideration of Google’s business model.
Am trying to focus back in on my original assertion about what I was going to study. This was whether there are differences between subjects and their degree of separation from the www, and their primary ontologies. Although I was going to use economics and psychology or perhaps sociology and their attendant ontologies to create a spotlight with which to examine this question, this would still involve looking at the ontologies of a range of other subjects.
I was going to use economics as a focus, as I think it perhaps represents something that might be wrong with how we talk about knowledge in general and reasons for studying, working together, collaborating – ultimately: trust.
A lot of work that we do is tied into research programs that are underwritten by governments as being part of some economic promise. For example, the last Labour government’s education policy was predicated partly on the premise (stemming from research in the 1950s that re-emerged in the 1970s (need to find and cite)) that countries with a more highly educated population tend to do better economically. Thus following Tomlinson’s recommendations, the Diploma system was introduced, only partially, which in fact had the consequence of introducing a system that did the opposite of what he had intended.
This however, being loosely accepted: that the more highly educated a population is, the more wealthy their country, it would seem to follow that it makes sense to make use of emerging technologies to help to educate this population. There is a body of research on this – how technology can be ubiquitous; it can get to the places that teachers can’t, and can help to make learning something that is always ‘on’.
There are actually so many problems with these assertions that it would take a whole other blog post, or perhaps even, essay, or perhaps even, thesis to go into them – but I’m happy to accept that 1) learning is basically a Good Thing and that 2) technology can help to mediate it. I might perhaps then reluctantly accept that it’s possible that if you have a lot of learning, you might end up creating more wealth for your country, however some of the data for this is possibly correlative rather than strongly causal.
But to get back to my original question, it is whether there might be said to be an economics of ontologies? Could we find out whether there are some subjects that lend themselves, via their objects of knowledge to be shared and studied on the web? And that therefore are more accessible and therefore might end up generating more money?
It seems at first glance, that physics might be one of these subjects. Physics research can be large scale and tend to be carried out by large communities who share resources. Is there something about the nature of physics that makes people more likely to collaborate? Are they perhaps true seekers after knowledge who are less motivated by economics / reward than say, chemists? (Apologies to all you pioneering, truth-seeking chemists out there.) Would this then mean that by the very nature of a subject, if it attracts more people who care more about discovery, or truth, then they may well as a result, collaborate more, and could easily use technology in order to do this, but they care less about creating wealth, so that all web-based subjects that can easily or practically use the web to be studied are never going to be worth funding by governments who only care about short-term goals?
This seems on the face of it, rather facile, but it does intersect with another debate about why there still seem to be less girls studying physics, and in general, science subjects. (This debate appears worldwide, but I shall for now confine myself to the UK.) There was recently some speculation about whether the Big Bang Theory was attracting more people to the subject, but this generated some scathing responses from researchers who had determined that take up of physics was in fact governed by early influences.
This week I looked at the workings of competitive markets: first in basics, before turning more specifically to my research question around how the Web has changed competition between businesses from an economic viewpoint. I continue to refer to the Sloman, Hinde and Garratt book, ‘Economics for Business’ (5th ed).
As outlined in my posts on management studies from previous weeks, firms are greatly affected by market environments (particularly when it comes to pricing strategies). The more competitive the market, the greater the domination of the market over firms (e.g. resulting in ‘price takers’ nearer the model of the ‘perfectly competitive’ market when price is entirely outside a firm’s control, rather than ‘price setters’ nearer the model of the monopolistic, ‘imperfect’ market).
Although price is often at the heart of competitive strategy, the significance of non-price factors of competition should also not be underestimated. By differentiating one firm’s products from another’s, such as through design and marketing/advertising, firms seek to influence demand. Of course, the most dramatic growth in advertising expenditure over the last decade or so is on the internet (which increased from virtually nothing in 1998 to nearly 20% of all UK total advertising expenditure in 2008 based on data in the Advertising Strategic Yearbook 2009).
The better a firm’s knowledge of a market, the better it will be able to plan its output to meet demand. In particular, knowledge related to the size and shape of current and future demand choices by consumers is critical to the investment decisions that businesses make (Philip Collins, OFT Chairman, Speech 2009). Such predictions include the strength of demand for a firm’s products followed by responsiveness to any changes in consumer tastes (particularly when the economic environment is uncertain). Collecting data on consumer behavior is therefore highly valued by businesses, assuming it can be analyzed properly so it can be used to estimate price elasticity and forecast market trends and changes in demand. Price elasticity as a concept is the measure of the responsiveness of quantity demanded to a change in price. Methods for measurement include market observations, market surveys and market experiments.
Conversely, consumers face a similar problem when they have imperfect information about, in particular complex, products/services. In finding ways for consumers to trust information provided by sellers, establishing a reputation and third parties helping firms to signal high quality can assist. For example, Sloman, Hinde and Garratt refer to the online auction site eBay providing a feedback system for buyers and sellers so they can register their happiness or otherwise with sales.
The supply side of the market is just as important as the demand side. Businesses can increase their profitability by increasing their revenue or by reducing their costs of production. Both these concepts are subject to economic theorizing to discover the particular output at which profits are maximized. The answer in any one case is heavily dependent on the amount of competition in the market which is measured, in turn, by concentration levels.
E-commerce is a force at work undermining concentration (dominance by large consumers) and bringing more competition to markets. Its effects include:
• Bringing larger numbers of new, small firms to the market (‘business to consumer’/B2C and ‘business to business’/B2B e-commerce models), which can take advantage of lower start-up and marketing costs.
• Opening up competition to global products and prices, resulting in firms’ demand curves becoming more price elastic particularly when transport costs are low.
• Adding to consumer knowledge, through greater price transparency (e.g. through price comparison websites) and online shopping agents giving greater information on product availability and quality.
• Encouraging innovation, which improves product quality and range.
On the other hand, e-commerce disadvantages still include – for example – issues around delivery (such as timing) and payment security. Furthermore, larger producers may still be able to undercut small firms based on low cost savings from economies of scale.
Sloman, Hinde and Garratt provide an interesting case study of the challenges to Microsoft by the antitrust authorities in the EU and the US – something which I am very familiar with as a former competition lawyer. This example is illustrative of the balancing exercise required when assessing the virtues of allowing very large firms to be unfettered in terms of their potential exclusionary practices, versus allowing smaller firms a more even playing field to challenge such large firms which could dampen the latter’s investment in innovation over the long-term.
Of course, new internet-only firms (such as Facebook and Google) have very different business models from that of Microsoft, including the provision of numerous free products as part of a desire to create large networks of users and heavy dependence on tailored advertising revenues.
Next week, I will look at business strategy this time from an economic (rather than management) perspective.
Just reading Repko’s book on Interdisciplinary Research. Very interesting to consider that,’ Interdisciplinary research is a decision-making process that is heuristic, iterative, and reflexive. Each of these terms – decision-making, process, heuristic, iterative, and reflexive-requires explanation.’
I’m finding this very intriguing, especially in relation to one of our courseworks that involves outlining the process involved in searching for and (hopefully) finding material on a randomly selected question that has something to do with the web at its heart. It is interesting that although we think of searching as ‘seeking’ there is sometimes an element of filtering or of looking for material that might reinforce one’s original ideas.
Have also been reading on economics in Afghanistan, Intelligent Agents (not secret ones), hypermedia, (just discovered The Humument – an old favourite of mine is about to be released as an app) bots (including narrative bots and social bots – here’s one I made earlier) and privacy. At present these don’t strictly appear to be to do with my original question, but some of the topics keep re-presenting themselves to me and so I’m keeping an eye on them, to see if they might develop into a personal theme. Have also been reading on spimes, hyperreality and skeuomorphs, and came across this blog from Matt Jones on The Internet of Things.
Have a good introduction to Sociology (Giddens) but need to also check to see what isn’t in it, as it’s quite an old copy.
I pick up from where I left off last week – in particular, consideration of the field of management studies from the perspective of an organization (to be managed) as an ‘open system’. This conceptualization implies that various sub-systems should be considered from a management engagement viewpoint: the internal (towards maintenance of the system) and external (towards the competitive position of the system). One of the challenges under management theory is how to balance these competing values upon management time: in particular, how to trade-off the encouragement of flexibility and change, while still retaining control to ensure employees act appropriately.
In returning to the main research focus – how the Web/Internet is changing the nature of competition between businesses – an open system emphasizes how objectives, plans and solutions must adjust rapidly to changes in the external environment. These changes can come from a variety of sources. Boddy gives examples of the increasingly global nature of the economic system at large, deregulation in certain industries, the closer integration between many different areas of business (such as telecoms and entertainment), increasing consumer expectations and computer-based information systems. Many modern-day organizations operate in non-linear systems in which small changes are amplified through many interactions with other variables so that the eventual effect is unpredictable. In other words, management decisions should be grounded in the external context in which the organization is situated and the long-term consequences of a management decision can be majorly disrupted by circumstances in the outside world in an unforeseen manner.
Boddy goes on to introduce the idea of the competitive environment (defined as “the industry-specific environment comprising the organization’s customers, suppliers and competitors” or “micro-environment”). He distinguishes it from the “general environment (defined as the “political, economical, social, technological, (natural) environment and legal factors that affect all organizations” or “macro-environment”), as illustrated below:
Together, they make up the “external environment” or “external context”. Forces in the external environment become part of an organization’s agenda when internal or external stakeholders pay attention to them and act to place them on the management agenda. In turn, these demand a response (see next week for more on management theory related to the type of response).
In terms of analyzing the competitive environment, Porter put forward a theory of five forces which most directly affect management and the ability to earn an acceptable return. These are also found in economic theory and competition law: the ability of new competitors to enter the industry, the threat of substitutable products, the bargaining power of buyers, the bargaining power of suppliers and the rivalry amongst existing competitors. This analysis can also be applied at an industry level to determine overall profitability, being factors which influence prices, costs and investment requirements, as illustrated below:
To give one example, technological change can affect the proximity of competition between products which in turn can constrain a firm’s ability to raise price (Boddy gives the example of YouTube threatening established media companies and online recruitment threatening the revenues that newspapers receive from job advertisements).
Where management differs from economics is the nature of the response. Through analyzing the forces in the competitive environment, managers aim to seize opportunities, counter threats and generally improve their position relative to their firm’s competitors in the future. Like economics, however, management also looks at trends, such as the state of the economy which is a major influence on consumer spending and capital investment plans. Sociological trends can also be relevant. For example, many consumer businesses are changing direction from a strategy aimed at mass market towards developing much small brands directed at small, distinctive groups of consumers. This reflects the growing diversity of the population, with many personal and individual preferences more apparent (such as through the Web). Again, in turn, this shift has severe implications for media that relied on advertising from mass market advertising. There are also many examples of digital technologies affecting established markets (such as DVDs, MP3s, broadband services offering delivering online content, VoIP and digital photography).
In summary, critical reflection on business environment conditions is essential to the type of management strategy adopted. Next week I turn to theories of generic management activities of planning and decision-making, including strategy and marketing (to lead into discussions of how e-marketing has revolutionized the business world).
Am now looking at a book on economics called, ‘Markets not Stakes: The Triumph of Capitalism and the Stakeholder Fallacy.’ This is written by Professor Patrick Minford and was published in 1998. He outlines why he thinks that the stakeholder culture was mistaken and how capitalism was thriving. The stakeholder concept was supposed to find the middle way between ‘failed socialism and free-market capitalism.’ The blurb discusses the way in which regulatory proposals were to create more rights for workers, allow the government to override the pull of market forces on investment in an attempt to curb the 80s short term corporate culture.
I am particularly interested in this because it would seem very easy now to say how obviously mistaken this view was. However, it goes on to say that ‘Stakeholding is no different in essence from interventionist and redistributive taxation, its only difference is its lesser transparency, which therefore deceives people into believing it to be innocuous.’ Although he then apparently goes onto argue that it destroys incentives (the meat and blood of economics, according to ‘The Armchair Economist’ ) I’m initially quite interested in the transparency issue.
When I worked for a FTSE100 company that was quite concerned about corporate governance and hence ‘transparency,’ a word which we hear all too often nowadays, the other word that was always brandished was ‘stakeholders.’ Generally the more your job was to do with explaining figures and processes to people, the more you had to take ‘stakeholders’ into account. This actually meant not just anyone who had a right of some sort (surely just one’s bosses in a monolithically hierarchical company structure?) to poke their nose into what was going on, but those who felt that they ought to have a right. Or those, like me, who were just very, very curious about how it all worked. The more stakeholders there were (in a PLC serving most of the country’s households, that was at least 18 million) actually the less possible it became to be transparent. I’m increasingly convinced that the possibility of transparency decreases exponentially in any very small company (say, 7 or fewer employees) or any company that has over say, 300 employees, just because of organisational factors. I’m also wondering whether this is not accidental, but actually deeply tied into company size (depending on its structure, or how the power gets passed around). So am quite interested to read this book and see what comes out.
Am reading it alongside ‘The Armchair Economist’ which is interesting, but is leaving me feeling vaguely unsatisfied at present.
Mors ubi dira fuit vita salusque patent.
So, to expand the first blog post a little: what I think is nagging at me is this sense of a range of ‘objects,’ of pieces of ‘knowledge-meat’, or ‘currency’, that are consumed or traded within their own disciplines. Sometimes these objects of knowledge have the same names in other subjects, but they mean different things. And across disciplines the means of making them edible, civilized, tradable can be hugely different. Traditionally these bits of ontologies, of data (they are sometimes data) are going to somehow be examined, discussed, prodded, perhaps measured: quantified or qualified in some sense. In the past this might have been described on paper. These days, some of us (perhaps not that many, globally) have the web as a means of mediating discovery and knowledge acquisition. There are many things that can be done with knowledge on the web: it can be hidden, it can be spread, it can be created, it can be pushed around. If tiny bits of data somehow fit with the tiny little pieces of the structure of the web, then one might suppose that a sort of true picture emerges. However, again, something that has nagged at me is how so much of our thinking is analogical, or metaphorical. So that true pictures are actually very hard to locate using reductionist mapping – see Wicked Problems, for example.
What I think might be part of one of the questions I want to pursue, is to do with how the web might change the analogies that are implicit or embedded within disciplines. Sometimes the process of collaboration can bring out these assumptions. Sometimes, collaboration is hugely impeded by them.
For example, one of our widely used assumptions or analogies that fascinates me, is that which describes electricity. Electricity has long been portrayed as a commodity. Walter Patterson (a physicist by trade) has written at length on this subject, in a book called, ‘Keeping the Lights On.’ The traditional picture of electricity is of something that ‘flows’ like water, and can be cut off, traded, conserved, or wasted. Entire forests have been destroyed in the pursuit of the subject of electricity and our consumption of it. Generations of schoolchildren have suffered sleepless nights, worrying (somewhat misguidedly) about global warming’s fatal pendulum hanging over the Polar Bear every time they put their heating on (along with the location of the calorie - another rather elusive and misleading concept.)
Patterson says, “How many times have you heard or read some energy specialist refer to ‘energy production’ or ‘energy consumption’? These people are supposed to be experts. Surely they ought to know one unbreakable law, the First Law of Thermodynamics, the law of conservation of energy. No one produces energy. No one consumes energy. The amount of energy in the whole universe remains the same.”
He then goes on to describes a host of assumptions that arise incorrectly out of our making electricity a commodity to be traded, the most simple being that arising from the regulators who are allegedly looking for the best deal for the household market – a low unit price does not equal a low bill – the holy grail for the ‘consumers.’ To me, having worked with the UK’s largest energy company and, in particular, with their hard and soft data, it’s clear on a fairly elementary level that describing our relationship with electricity like this is going to cause anxiety for the ‘consumer’. It describes a selfish market. It’s all about measuring how much we use, and not the quality of our relationship with it. Too much = red, not very much = green. It’s almost a little bit childish. Imagine designing an app to somehow map our relationship with energy. It would have reds and greens, wouldn’t it? It would be about ‘a lot’ (scolding) or ‘a little’ (caressing tone of voice- well done.) It would be great to break from this model and look at different ways of being technical about how we are with energy.
Even as I’m doing my preliminary, slightly distracted, coffee-table pre-reading, this strikes a chord with me. A book I picked up a couple of weeks ago, written by Stephen Landsburg is called, ‘The Armchair Economist.’ (In the manner of many inhabitants of armchairs he keeps disappearing just when I want him. I’m also wondering if The Spy in the Coffee Machine can see him from the kitchen, and if so, whether they should talk. Never mind.)
The first chapter of this book starts boldly with, “Most of economics can be measured in four words: ‘People respond to incentives.’ The rest is commentary.” He then goes on to describe, or perhaps, hypothesise, how making cars more safe kills more people, as people drive more safely in more dangerous cars. Landsburg continues by saying that economics begins with the assumption that all human behaviour is rational. I’m presuming that part of the rest of the book is to decry this notion triumphantly. It is very fashionable nowadays (and seems to cause great joy for the evolutionary psychologists) to show how entirely irrational we are; however I can’t help feeling that there is sometimes a confusion in the literature between say a system of perception, or of governance that overcorrects, and the net result that that has for the movement and/or survival of its owner. (I know, feeling something isn’t really academic: it’s another question to explore.)
So, now I have economics and markets intruding a little into my original speculation about how the concepts or metaphors embedded in disciplines might be creating pictures that aren’t entirely correct. It’s certainly the case that while markets have their own language, they also trade in the languages used by the disciplines that come together to create the products or objects on sale. And now, for some of us, the sorts of things that can be traded, over the net for example, are elusive objects, which it might be worth while trying to pin down a little further. I’m worrying that some of this sounds as though I’m just talking semantics. I do intend to explore this further and show how it’s not just trivial misunderstandings, but deep ones that maybe re-cast our notion of the world to some extent.
As far as a methodology goes, my approach to research is often about contingency. Particularly interdisciplinary research. I don’t believe that using a wholly empirical, top-down filtering method is always going to work, as this assumes that there is an explicit pool of knowledge out there to be refined. My very subject matter says that this might not be the case. So, although I intend to use the traditional method, and my next step is to get my text books on economics and psychology/ sociology, and to read and annotate findings from them, I will also read a lot of not-quite academic, coffee-table stuff that gives me a feel for whether I would be happy to say, sit and have lunch with the people who are writing. And, more immediately, I’m suffering from a nagging sense of not having figured out what the correct referencing procedure for blogging is. I’m used to using hyperlinks and checking they’re still live every now and then. Suspect I might need proper references.
I also haven’t yet drawn out my reasons for an interest in psychology, but, quickly, this is because I think that in the pursuit of truth (which should arise somewhere when looking at how subjects are affected by the web), it is is probably going to be interesting to look at what drives people to co-operate and trust each other when working together within specific subject areas that use specific ontologies that might or might not be affected by the emergence of the WWW.
I am now releasing these thoughts into the wild, where they can roam about in a sort of purgatory of waiting for approval.
Researching Distributed Currencies.
Over the course of my time here studying Web Science, I would like to do some in depth research into distributed currencies. A distributed currency is a form of money with no centralized processor or controlling authority. At the moment there are only a handful of distributed currencies in existence, and the majority of them stem from Bitcoin. Bitcoin is a “totally” anonymous and distributed online currency. It’s similar to PayPal in that you can use it to buy things online and send/receive currency quickly and conveniently.
PayPal is the opposite of a distributed currency, it’s centralized. PayPal handle all the processing of transactions, and they are also the authority for all transactions and for this service they charge a small fee on each transaction (varying from 2% – 8% of a transaction + a fixed 20p.) If PayPal doesn’t like a transaction, it will slow it, stop it or outright take your money away (googling PayPal took my money returns over 6million results.)
A distributed currency is not centralized. The transaction processing is handled by anybody who chooses to use the currency which normally involves running some client software. Because it’s running on anybodies computer, the currency must be designed in a secure way that doesn’t allow individual clients to tamper with or reverse transactions. The implications of this are a totally unregulated currency where nobody can decide what is right or wrong.
The pro’s of this are that people can make transactions for anything they want, without the worry of their account being frozen or their transaction being blocked or slowed or outright refused by a regulatory authority like PayPal. There is no single point of failure (or corruption.) Also, there is no mandatory fee’s to use these currencies or make transactions. The open distributed nature utilizes the internet in the way it was intended. It could be argued that centralized services governed by one authority undermine the entire point of have the internet (a distributed network) in the first place.
Bitcoin is totally anonymous also. If you want to receive money, you give someone a wallet address. You can have as many wallet addresses as you want which has the end result of it being impossible to link transactions to people. However, combine anonymity, money, and no regulation or authority and sure enough, you get criminals.
Bitcoin received a lot of publicity after the launch of a website called silkroad which was described as “the Amazon marketplace of drugs” which allowed users to by all sorts of illegal items including drugs and weapons – all paid for by the anonymous distributed currency Bitcoin. As well as Silk Road for weapons and drugs, there have also been suggestions that Bitcoin is used to trade in other illicit things such as hiring bot nets, hitmen, slaves, prostitutes and more.
Because there are supposedly a large amount of criminals using Bitcoin, there is a lot of fraud. Browsing Bitcoin forums and it’s not hard to find posts of people frustrated at being scammed out of several hundred Bitcoins (the current conversion is 1btc = $3) because there is no regulatory authority to reverse fraudulent transactions.
However, that’s not to say everyone that uses Bitcoin is a criminal or that every transaction is related to an illegal item. The idea of totally free online transactions should appeal to anybody that sells online, as it could result in lower product prices for the end user.
Over the course of my research, 1 of the many aspects of distributed currencies I would like to look into is ways of making a distributed economy that is less risky to use (e.g. reducing fraud and scams, it maybe that this means reducing anonymity) but maintaining the benefits of free transactions and no single point of failure/corruption.
My 2 subjects of research
My background is in computing science, I think it would be useful for me to also have a better understanding of economics and and criminology for the aspect of research above. Why?:
Economics: wikipedia described economics as “the social science that analyses the production, distribution, and consumption of goods and services.” I believe a deeper understanding of this and the methods associated with economics would allow me to conduct more informed, appropriate and educated research and to account for and explain the necessity of currency, trade and economies. Specifically I would like to look into online/cyber economics as it’s important to understand the differences (if any) between how people trade online vs. in the real world and how to cater towards these differences and incorporate them into my future research.
I’m not sure yet, I’ve been looking for economics books relating to the web and internet but have been unsuccessful in finding any so far. If anyone has any suggestions, please don’t hesitate to put them forward!
Criminology: wikipedia describes criminology as “the scientific study of the nature extent, causes and control of criminal behaviour in both the individual and in society.” In order to protect something against crime and fraud, I believe it’s important to first understand why people commit crime and fraud in the first place. Specifically I would like to look into cyber criminology to try and get an idea of the research methods used to access and understand such a dark corner of the web. I’d like to learn if and how researchers in this area get full, truthful and honest answers from an area that is inherently full of people willing to mislead.
Not 100% sure on this one yet, but here’s a few ideas:
Cyber Criminology: Exploring Internet Crimes and Criminal Behaviour (2011)
“Approaching the topic from a social science perspective, the book explores methods for determining the causes of computer crime.”
Cyber Forensics and Cyber Crime: An Introduction (2008)
“It includes and exhaustive discussion of legal and social issues, fully defines computer crime…provides a comprehensive analysis of current case law, constitutional challenges and government legislation”
After spending the last few weeks getting to grips with the very basics of economics i’ve now looked at how the various approaches and mechanisms used by the discipline could more directly be applied to the issue i’m looking at – reputation and its value. I’ve continued to concentrate on undergrad texts, primarily Economics by Parkin, Powell and Matthews, A Course in Microeconomics Theory by Kreps and Economics by Lipsey.
As i mentioned in the last blog economics assumes that individuals act in their self interest; that is, they will do things in a way that will maximise their position according to their values. When you choose to enter into a transaction with person a as opposed to person b, you will do so because you perceive that transacting with person a will leave you in a better position than transacting with person b will. One of the considerations that may lead you to this conclusion will be the degree to which you believe person a will act with integrity, and this integrity will be externally demonstrable by their reputation. Hence, reputation can be considered something that affects competition, and the way in which economics deals with competition needs to be considered.
There are four market types in economics:
Perfect competition, where:
- many parties offer identical goods to many buyers,
- there are no restrictions on entry into the industry,
- existing vendors have no advantage over newcomers, and
- all parties to a transaction are well informed about the prices of products.
Monopolistic competition, where:
- a large number of parties compete by making similar but slightly different products,
- production differentiation gives each monopolistically competitive firm an element of monopoly power,
- barriers to entry are limited.
- a small number of firms compete, and
- natural or legal barriers prevent the entry of new vendors to the marketplace.
- one firm produces a good or service for which no close substitute exists,
- natural or legal barriers protect the firm from newcomers to the market.
With these definitions in place it would be possible to draw parallels between the different types of market and instances on the web where reputation comes into play. As a very rough example, an expert forum on Visio could be considered a Oligopoly, as people will only listen to the advice of a small number of recognised experts, and in order to be considered an expert a user must have certain qualities (such as a long and illustrious posting history). Newcomers will struggle to impose themselves.
I next looked at game theory as a way of potentially understanding how people may try and to actively enhance their online reputations. Game theory is something i’d heard about previously, particularly the prisoner’s dilemma, but i’d not really explored it sufficiently to be able to see how it might apply to the issue i’m tackling. Very briefly, it serves as a tool for studying strategic behaviour; that is, behaviour that takes into account the expected behaviour of others and the recognition of mutual interdependence. To take this back to the reputation issue, people building a reputation do not do so in a vacuum; their reputation will only benefit them if it is ‘better’ than somebody else’s. As such, those attempting to enhance their reputation may decide to act in certain ways due in part to their perception of what their competitors may be doing.
. The prisoner’s dilemma is probably the example that most people are familiar with: two criminals have been apprehended on suspicion of committing a robbery and are being held in separate cells. The police know that the two together committed the crime, but lack sufficient evidence to convict. They are each therefore offered a deal - convincingly implicate the partner. If neither implicates the other, each gets no time in jail. If each implicates the other, each receives a short amount of time in jail. If one implicates the other but is not implicated, the implicator gets off (and gets a greater share of the proceeds of the crime) and the implicated goes to jail for a longer period of time. Each ranks the four possible outcomes, with the result that it is best to implicate your partner, next best to not implicate and not be implicated, next best to implicate and be implicated and worst to not implicate but be implicated. Abstracted, this suggests that co-operation is not in one’s best interest if the other party intends to co-operate (in the prisoner example co-operating meaning co-operating with each other by not implicating each other.)
Gaining an understanding of the economic constructs of markets, competition and game theory has certainly been an interesting exercise, and i’m glad i have had the opportunity to look at them in more depth, but i still worry that the link to my issue area is a little tenuous. I believe they could certainly add something to the understanding of one type of strategy actors may pursue when attempting to enhance and capitalise on their online reputation, but just as likely people could choose to completely ignore any notion of competing with others and still gain a positive reputation. I’ve discovered a little bit on social capital, which will hopefully fill in the blanks, and will write about this next week.