Notes: Digital Economics (Goldfarb & Tucker, 2019)

This is a literature review paper covering lots of information about digital economics and I would like to recommend anyone who is interested in digital businesses to read this paper. It is a literature review paper, so it is not packed with theoretical and statistical models and the language is very friendly to understand. Moreover, it just got published this year, so its content is very up-to-day.

Among the literature it covers, there are two topics which are the most interesting to me. One is how digital companies sell their products profitably and the other is why privacy is so important. How do digital companies sell their products profitably? This question is closely correlated to the issue of piracy and can be transferred into how digital companies fight piracy. The existing literature points out that bundling many products together can help to fight piracy and it can boost revenues, especially given customers have different prospects about products’ prices. And bundling thousands of products is only possible for large companies, and this significantly reduces competition. Relating to bundling, music subscription is an example of digital bundling. Although music subscription reduces piracy and boosts sales, it increases legal music consumption balance and eventually the firms providing music subscription service like Spotify do not generate huge profits.

The other answer is why people are valuing their privacy more and more. This is answered by the existing literature. When the market is not very competitive, firms can use the information collected from customers to exploit their customers, so customers tend to hide their information from firms. Therefore, we are valuing our privacy more and more shows some tech companies are gaining enormous market power which enables them to use the information collected from us to exploit us. This provides a solution for tech companies’ mishandling our private information, which is to increase the market competition.

Overall, this literature review paper includes lots of interesting topics studied by the existing literature about digital economics. It is a great paper that provides a picture about how the existing literature explores digital economics so far in the simplest and clearest way.