Hassan II University of Casablanca – Morocco

FSJES Aïn Chock

MASTER
Strategy & Leadership

Course material

Digital
Economics
Prof. Khadija HAMDANI

Semester 1 – 2024/2025
 TABLE OF CONTENTS

INTRODUCTION .......................................................................................................................................................... 1

1. WHAT IS DIGITAL ECONOMICS? ...................................................................................................................... 2

Reading 1: What happened to the assets? ..................................................................................................................................... 4

THE ECONOMY OF COLLABORATION ................................................................................................................ 7

2. BETWEEN PRODUCTION AND CONSUMPTION.................................................................................................. 8

2.1. The Drivers of the Economy of Collaboration ............................................................................................... 8
2.2. What is Smart Manufacturing?..................................................................................................................................9
2.3. What is the Sharing Economy? .................................................................................................................................9
3. SECTORAL PERSPECTIVES .............................................................................................................................. 10
3.1. The Sphere of Innovation ............................................................................................................................................10
3.2. The Sphere of Consumption, Production and Services .......................................................................10
3.2.1. The Modes of Regulation ....................................................................................................................................................... 10
3.2.2. Consumption in the Economy of Collaboration ....................................................................................................... 11
3.2.3. Production in the Economy of Collaboration ............................................................................................................12
3.2.4. The Platforms for Services ................................................................................................................................................... 14
3.3. The Sphere of Financing .............................................................................................................................................. 15
4. RESEARCH PERSPECTIVE: THE INFRASTRUCTURE OF COLLABORATION ........................................................ 17
4.1. Fab Labs: Collective Goods in the Collaborative Economy .............................................................. 17
4.2. Peer-to-Peer Platforms: Three Case Studies .............................................................................................. 18
4.2.1. Airbnb and Short-Term Rentals ........................................................................................................................................ 18
4.2.2. BlaBlaCar and Carpooling ...................................................................................................................................................... 18
4.2.3. Gnammo and Social Eating .................................................................................................................................................. 18

FOUNDATIONAL CONCEPTS AND THEORIES ............................................................................................... 20

5. NETWORK EFFECTS: DEMAND-SIDE ECONOMIES OF SCALE.........................................................................21

Paper 1: Katz, M. L., & Shapiro, C. (1985) ...........................................................................................................................................21
Reading 2: A Giant Reaches Out ........................................................................................................................................................ 23
6. UTILITY: DATA-DRIVEN AND DATA-PRIVACY TRADE-OFFS ....................................................................... 25
Paper 2: Puaschunder (2017)................................................................................................................................................................ 26
Reading 3: Hi, Robot! .................................................................................................................................................................................. 28
7. VALUE CREATION IN DIGITAL BUSINESS MODELS: STRATEGIC PATHWAYS TO DRIVE STAKEHOLDER
ENGAGEMENT AND ECONOMIC GROWTH.............................................................................................................. 30
7.1. Value Creation Models and Competitive Advantage ........................................................................... 30
7.2. Classical vs. Digital Business Models ................................................................................................................. 31
Reading 4: Ronteau et al. (2023)........................................................................................................................................................ 32

CONCLUSION .......................................................................................................................................................... 34

8. CLASSICAL VS. DIGITAL ECONOMICS: HOW HAVE ECONOMIC ASPECTS CHANGED?................................. 35

9. DIGITAL ECONOMICS AS A COMPLEX SYSTEM ............................................................................................. 38

REFERENCES ............................................................................................................................................................ 39
“Understanding the effects of digital technology does not require
fundamentally new economic theory. However, it requires a different
emphasis. Studying digital economics starts with the question of
“what is different?".“

Goldfarb and Tucker, 2019.

INTRODUCTION
1. What is Digital Economics?
Digital economics is based on information and communication technology (ICT) and
refers to the branch of economics studying digital services and goods and how digital
transformation affects markets.

Digital economics is also known under different terms, each term having a slightly
different focus and scope. Øverby and Audestad (2021) have defined these as follows:

• Network economy focuses on businesses in which much of the economic value

is generated by network effects. Network effects are abundant in the digital
economy and explain how value is generated in several, but not all, digital
businesses.
• Platform economy focuses on businesses that act as platforms. The primary
business idea is to connect two or more user groups (two-sided or multisided
markets). Platform economy is closely related to network economies since
network effects are also important drivers for platform businesses. However, not
all network economies are platform economies and vice versa.
• Information economy focuses on information products and how they are
produced and traded. The information economy is part of the digital economy,
but the latter is broader in scope since it also includes more than pure
information goods.
• Data economy focuses on the business of harvesting and analyzing data. Data
is gathered from users or the environment and stored in large databases. Big
Data techniques and artificial intelligence are applied to analyze the data, where
the purpose is to extract information of value to businesses or governments.
Such data may also be traded on the market, for example, as input to statistics
or as the basis for producing targeted advertisements.
• Virtual economy is the economy of virtual worlds, e.g., World of Warcraft and
Second Life. To some extent, virtual economies reflect the real economy
regarding the supply and demand of goods, trading, and network feedback.
Virtual economies are mostly disconnected from the real economy. However,
there are examples of virtual economies that can generate trade in the real
economy (e.g., gold farming in World of Warcraft).
• Internet economy comprises the economics of Internet goods and services.
Since most of the economic activity within the context of digital economics is
performed over the Internet, Internet economy is close in scope to digital
economics. One important digital market that is excluded in the Internet
economy is the economics of telecommunications, that is, the market for
broadcast, Internet, and mobile and fixed network services.

pg. 2 of 43
 • Attention economy is related to the value created by people’s attention. User
attention is an important element in many digital business models. The basis for
the attention economy is that data has become abundant, while people’s
attention span remains a scarce resource. There are business models that
exploit people’s attention span to generate revenue; the most well-known are
those based on advertisements.
• Sharing economy is the economy in which people or organizations share goods
and services such as Airbnb and Uber. The sharing economy has also been
termed access economy, peer-economy, collaborative economy, and
crowdsourcing capitalism.
• Abundance economy is the economy of goods and services that are abundant;
that is, they are close to unlimited in supply. Many digital services exhibit
abundance features, since they can be copied with zero marginal cost. This
challenges one of the most fundamental assumptions in neo-classical
economics, namely, that resources are scarce. In several digital economies they
are not!
• Digital economics encompasses all or parts of the terms explained above. It is
important to point out that digital economics is a young academic field of study.
New terms appear, and definitions of existing terms are revised as researchers
gain increased understanding of the field and as new technologies expand the
boundaries of the digital economy and enable new business opportunities.

Summary of similar terms

Network economy Platform economy Information economy

Value generated by Connect two or more user
Pure information goods
network effects groups (two-sided and
produced and traded
(interactions) multi-sided platforms)
Microsoft, Paypal
Social media platforms Facebook, Amazon
Data economy Virtual economy Internet economy
Harvesting and analyzing Disconnected from the
Digital goods and services
data real world
Amazon, Netflix
Google Gaming apps
Attention economy Sharing economy Abundance economy
Aiming to get people’s Abundant goods and
attention (their attention services (opposite to
Share goods and services
span is considered scarce) scarce)
Airbnb, Uber
Advertising, Social media Open-source apps,
platforms shared platforms
Digital economics
Studies and encompasses on the use and implications of information and
communication technologies, e.g. digital goods and services.

pg. 3 of 43
Reading 1: What happened to the assets?
1. How do companies like Uber, Airbnb, and Alibaba challenge traditional
notions of asset ownership in economics?
Companies like Uber, Airbnb, and Alibaba challenge traditional economic models by
leveraging technology to coordinate resources without owning them. This reduces
fixed costs and capital expenditures, allowing scalability and flexibility.

2. What advantages and risks do asset-light models present compared to

traditional asset-heavy businesses?
Advantages include high scalability, reduced overhead, and faster market entry,
while risks include dependency on third-party assets and legal challenges in
regulating shared assets.

3. Why might companies with fewer physical assets, such as Alibaba, have a
higher market valuation than asset-heavy companies like Walmart?
Alibaba’s higher valuation compared to Walmart stems from its focus on intangible
assets like data, algorithms, and network effects. These drive exponential growth
and higher margins than physical assets.

4. How do intangible assets, such as data, platforms, and network effects,

contribute to a company’s market value?
Intangible assets allow businesses to generate value by connecting buyers and
sellers, leveraging data analytics to optimize transactions, and monetizing through
targeted advertising or premium services.

5. How do digital platforms achieve economies of scale without owning

physical infrastructure?
Digital platforms achieve economies of scale by adding users at low marginal costs.
They rely on algorithms and network infrastructure instead of physical inventory.
Network effects amplify scope, as more users increase platform value, attracting
even more participants, reinforcing a positive feedback loop.

6. How do platforms like Airbnb and Alibaba impact local economies and
global trade patterns?
Platforms like Airbnb boost local economies by creating income opportunities, but
they may also inflate property prices and disrupt traditional industries.

7. What are the potential consequences of these platforms on traditional

industries in host countries?
Globally, platforms streamline cross-border trade, reduce market entry barriers,
and connect niche sellers to international buyers, fostering globalization.

pg. 4 of 43
8. What regulatory and ethical dilemmas arise from the global expansion of
companies like Uber and Airbnb?
Uber and Airbnb face challenges like labor disputes (e.g., gig workers' rights) and
taxation, as their asset-light models bypass traditional regulations.

9. How can governments balance fostering innovation with protecting public

interests and local economies?
Governments can introduce policies ensuring fair competition and social
protections while incentivizing innovation, like licensing systems or stricter data
privacy laws.

10. How does Facebook’s precision in ad targeting disrupt traditional

advertising models?
Facebook disrupts traditional models by offering precise, data-driven ad targeting,
which increases advertisers' ROI. This reduces inefficiencies seen in mass media
advertising.

11. Discuss the implications of data-driven advertising on consumer behavior

and market efficiency.
Precision targeting raises concerns about privacy and manipulative advertising,
potentially altering consumer choices based on behavioral data rather than
preferences.

12. How does Facebook’s investment in AI, virtual reality, and connectivity
projects (e.g., solar-powered airplanes) reflect the shift in economic value
creation?
Facebook’s investments reflect an economic shift where data and innovation drive
growth. AI enhances personalization, while connectivity projects expand their user
base, creating new revenue streams.

13. What role does innovation play in sustaining the competitive edge of digital
platforms?
Continuous innovation keeps these platforms relevant in fast-evolving markets,
fostering long-term growth and market dominance.

14. How do initiatives like Alibaba’s Singles’ Day promote economic

globalization?
Alibaba’s Singles’ Day promotes globalization by capitalizing on cultural events to
stimulate consumer spending and expand international trade.

pg. 5 of 43
15. What cultural and economic factors contribute to the success of such
initiatives in specific regions?
Regional success factors include cultural resonance (e.g., celebrating singles),
robust logistics infrastructure, and effective marketing strategies appealing to
global consumers.

16. Are these companies’ business models sustainable, or could they

themselves be disrupted in the future?
Uber and Airbnb disrupted traditional industries by targeting unmet market needs,
offering convenience and affordability. Their models leverage technology to solve
inefficiencies (e.g., lack of taxis or expensive hotels). While sustainable in the short
term, these companies face potential disruption from regulatory shifts, emerging
competitors, or evolving consumer preferences (e.g., environmentally sustainable
options).

17. How do digital platforms affect income distribution among different

stakeholders (e.g., workers, platform owners, and users)?
Digital platforms can widen inequalities by concentrating wealth among owners and
investors while creating precarious gig-economy jobs.

18. What policies could address inequalities exacerbated by digital platform

economies?
Policies like minimum wages for gig workers, taxation of platform revenues, and
incentives for equitable growth (e.g., platform cooperatives) could mitigate these
inequalities.

pg. 6 of 43
THE ECONOMY OF
COLLABORATION
Based on: Ramella, F., & Manzo, C. (2021). The economy of collaboration: The new digital
platforms of production and consumption. Routledge.
Ramella, F., and Manzo, C. (2021) explained in their book the shift toward new ways of
production and consumption driven by digitalization. This transformation expands
market boundaries at various levels, posing challenges to economic and social policies
as well as values. They propose the concept of the economy of collaboration as a
mode of organizing the production, distribution, and consumption of goods and
services to foster shared value.

The authors distinguish between the sharing economy and smart manufacturing as
forms of collaboration that have transformed consumption and distribution, and
production, respectively. The book offers a comprehensive analysis of the evolution
of the economy from multiple perspectives, emphasizing the central role of
collaboration in the new digital platforms.

2. Between Production and Consumption

2.1. The Drivers of the Economy of Collaboration

The collaborative economy has been expanded due to four main drivers:

1. The technological revolution has enabled seamless communication, resource

sharing, and collaboration. This revolution has fostered innovation, efficiency,
and personalization but has also raised competition, data security, and privacy
risks.

2. The changes in production systems have given rise to more open and flexible
organizational models that leverage collective expertise and resource pooling

3. The changes in consumption models characterized by a growing preference

for access over ownership promoting shared usage of resources and variety of
experiences.

4. Globalization had enabled broader reach and fostered innovative and

industrial flows globally due to instant global access to information and
knowledge.

This expansion advanced collaboration at different levels to connect, share resources,

and co-create value enabling sustainability and efficiency. This shift toward
collaborative models highlights how traditional market structures are being
complemented or disrupted by collaborative networks. It also stresses the role of
trust, reciprocity, and collective intelligence as foundational elements of this new
economic paradigm.

pg. 8 of 43
2.2. What is Smart Manufacturing?
Smart manufacturing is described as a transformative production system rooted in
advanced digital technologies that facilitate connectivity, automation, and
customization by leveraging data-driven decision-making. It serves as a pivotal
element in the economy of collaboration, transforming traditional production systems
into collaborative and innovative networks. By providing real-time access to up-to-
date data, smart manufacturing enhances problem prevention, enables greater
personalization, and promotes operational flexibility. Furthermore, it contributes to
sustainability by minimizing waste and reducing costs while improving efficiency
through instant data access and analysis.

Despite these advantages, the adoption of smart manufacturing is accompanied by

significant challenges and implications. These include the substantial initial
investment required for advanced technological infrastructure, the demand for a
highly skilled workforce, vulnerabilities to cybersecurity threats, and the necessity for
cultural and structural transformations within organizations.

2.3. What is the Sharing Economy?

The sharing economy is characterized by peer-to-peer exchanges facilitated by
digital platforms, prioritizing access over ownership. These platforms act as
intermediaries, connecting users and enabling collaborative consumption,
community interactions, and resource sharing. By facilitating such exchanges, these
platforms significantly reduce transaction costs while fostering both economic and
environmental benefits. The sharing economy manifests in various forms, including the
recirculation of goods, increased utilization of durable assets, exchange of peer
services, and shared spaces or resources for production.

A fundamental aspect of the sharing economy lies in the concepts of trust and
reputation. Digital platforms rely on mechanisms such as ratings, reviews, and secure
payment systems to build trust and ensure reliability. These factors are critical to
enhancing user retention, promoting long-term participation, and ensuring the safety,
reliability, and efficiency of the overall user experience.

The sharing economy also presents significant implications and challenges. While it
has introduced new opportunities for employment, income generation, and increased
flexibility, it has also raised concerns regarding regulation, labor rights, social
protection, and inequality. These challenges highlight the need for appropriate
governance frameworks to address issues such as worker rights, fair compensation,
and equitable access to the benefits of collaborative platforms.

pg. 9 of 43
3. Sectoral Perspectives

3.1. The Sphere of Innovation

Innovation models have evolved significantly over time, with collaboration emerging
as a fundamental element in contemporary approaches. Modern models, such as
open innovation (corporate-focused) and free innovation (community-driven), have
expanded the traditional frameworks of innovation by fostering creativity and
addressing complex societal challenges. These models emphasize that collaboration
through networks enables the pooling of knowledge, skills, and resources, leveraging
shared efforts for mutual benefit and accelerating the pace of innovation.

Digital platforms play a central role in facilitating seamless collaboration by reducing

barriers to entry, minimizing transaction costs, and enabling real-time communication.
These platforms create environments that support collective problem-solving and
resource-sharing, making it easier for diverse actors, from individuals to organizations,
to contribute to innovation processes.

This shift towards collaborative innovation also presents notable challenges. Managing
intellectual property rights becomes increasingly complex in collaborative settings,
particularly when contributions are distributed across various participants. Ensuring
equitable participation and addressing power imbalances among collaborators is
another critical concern, as is navigating potential conflicts between competitive
interests and shared collaborative goals. Moreover, the sustainability of collaborative
efforts often hinges on securing adequate funding and establishing clear governance
structures to maintain accountability and long-term commitment. While collaborative
innovation models offer immense potential to address societal and economic
challenges, their success depends on effectively managing these complexities to
foster inclusive, equitable, and sustainable innovation ecosystems.

3.2. The Sphere of Consumption, Production and Services

3.2.1. The Modes of Regulation

The authors emphasize that new modes of consumption, production, and services are
increasingly characterized by mixed forms of regulation, encompassing hybrid
markets and balanced reciprocity. They differentiate between the key characteristics
of experiences associated with traditional market exchange and those rooted in
generalized reciprocity. Additionally, they highlight how the rise of digitalization has
given rise to these mixed forms of regulation, blending elements of both traditional
and reciprocal systems to create innovative and dynamic frameworks for interaction.

pg. 10 of 43
 Characteristics of different modes of regulation

Feature Market exchange Generalized Mixed forms of

reciprocity regulation
(hybrid markets and
balanced reciprocity)
Identity Identity can remain Identity is Identity remains
anonymous (as fundamental. fundamental.
interaction involves
objects or spaces,
not people).
Social No social New and innovative New and innovative
relationship relationship is social relationships social relationships
generated between are generated. are generated.
participants.
Platform-user Asymmetrical. No asymmetry. May be asymmetry.
relationship
Relationship Functional and Expressive- Includes expressive
orientation instrumental. experiential and experiential
orientations and dimensions.
motivations.

Purpose of Money is the means, Money is not the Money can be one of
exchange and profit is the goal. primary purpose. the purposes.
Membership Does not imply Implies recognition Implies recognition
and recognition as part as a member of a as part of a
community of a community. community. community.

3.2.2. Consumption in the Economy of Collaboration

The authors discuss the concept of collaborative consumption which emphasizes

how digital platforms enable individuals to shift from traditional ownership models to
systems of shared access and exchange. Collaborative consumption is framed as a
response to economic, environmental, and social challenges, emphasizing resource
efficiency, sustainability, and community building.

The authors distinguish between several forms of collaborative consumption,

highlighting its diversity and adaptability across various sectors:

1. Exchange of Unused or Rarely Used goods

This includes bartering or trading secondhand items, such as book-crossing

initiatives, where individuals exchange books they no longer need. These
practices reduce waste by recirculating products.

pg. 11 of 43
 2. Mobility: Sharing of Private Transportation

Platforms such as BlaBlaCar and Lyft facilitate the shared use of private
vehicles, offering carpooling and ride-sharing services. This reduces
transportation costs, environmental impact, and reliance on private car
ownership.

3. Homestay: Cohabitation and Hospitality Services

Examples like Airbnb and Couchsurfing enable individuals to share or rent out
living spaces. These practices promote the efficient use of housing resources
while fostering social interaction.

4. Food consumption: Social Eating Services

Platforms like Gnammo create opportunities for shared meals, allowing

individuals to host or participate in dining events. This fosters social connection
and enhances the cultural and communal aspects of eating.

5. Exchange of Intangible Assets

Digital platforms, such as TimeRepublik, facilitate the exchange of skills and

services through time banks, where users trade their expertise without
monetary transactions. This form of collaboration encourages skill-sharing and
builds trust among participants.

6. Access-Based Consumption

This involves paying for access to goods and services rather than acquiring
ownership. Examples include subscription-based models or shared usage of
goods and spaces, supporting a shift toward a more sustainable consumption
model.

The book provides more details and examples of collaborative consumption in

redistribution markets, car mobility, hospitality, and food consumption.

3.2.3. Production in the Economy of Collaboration

Ramella and Manzo (2021) explore how collaborative approaches are transforming
traditional production processes. They emphasize the shift towards decentralized,
network-based production systems facilitated by digital platforms. These systems
rely on shared resources, knowledge, and technologies to foster innovation and
efficiency. The authors underline key forms of collaborative production and their
regulatory frameworks, as well as the role of crowdsourcing and open systems in
reshaping production dynamics.

pg. 12 of 43
The authors outline how production in the collaborative economy is based on shared
efforts and participatory practices, often breaking away from hierarchical
organizational structures. Collaborative production includes:

• Decentralization: Shifting away from centralized control to distributed

networks of contributors.

• Shared Resources: Maximizing the use of collective assets and tools to

minimize costs and encourage innovation.

• Digital Platforms: Serving as intermediaries that connect contributors and

facilitate coordination.

The authors highlight crowdsourcing as a fundamental mechanism in collaborative

production. Crowdsourcing enables individuals and organizations to pool ideas,
expertise, and resources through digital platforms, democratizing innovation and
fostering collective problem-solving. Examples include funding platforms like
Kickstarter or community-driven initiatives for software development. The chapter
provides an in-depth analysis of open production systems, which rely on
transparency, inclusivity, and accessibility. These systems are categorized into three
main models:

Model Definition Benefits Challenges Example

Open Source Focuses on Accelerates Lack of formal Linux operating
providing innovation, management system
public access shortens structure and
to software development limited funding.
source code. cycles, and
enhances
security.
Open Design Emphasizes Enables Risks of RepRap 3D
sharing customization intellectual printing
designs under and cost property project
free licenses. reduction. conflicts and
quality
inconsistencies.
Open Involves Encourages Challenges in Fab Labs
Manufacturing shared innovation and standardization
production democratizes and supply
methods and manufacturing. chain
resources. management.

While collaborative production offers significant potential, it also presents challenges:

• Intellectual Property: Managing ownership and usage rights in open and

collaborative contexts.

pg. 13 of 43
 • Quality Control: Ensuring consistency and reliability across decentralized
contributions.

• Governance and Coordination: Balancing the needs and goals of diverse

contributors within open systems.

• Sustainability: Securing funding and maintaining engagement over time.

3.2.4. The Platforms for Services

Ramella and Manzo (2021) examine platforms for services as new forms of
entrepreneurship and online communities that facilitate the exchange of intangible
goods, such as time and skills. These platforms redefine traditional service models by
enabling individuals to share or monetize their expertise, often leveraging digital
technologies to connect users efficiently. The platforms differ in the specificity of
skills required and the type of exchanges they support, which can be broadly
categorized into work-for-money platforms (e.g., gig and micro-task economies)
and time-bank platforms (e.g., non-monetary skill exchanges).

Characteristics of work-for-money platforms and time-bank platforms

Aspect Work-for-money platforms Time-bank platforms

Definition Platforms where individuals Platforms that facilitate non-
offer specific skills or services monetary exchanges of skills
in exchange for monetary and time, often organized
compensation. around mutual benefit.
Origins Emerged from the Rooted in cooperative and
commercialization of digital community-based traditions,
technologies and market- later adapted to digital
oriented platforms. platforms.
Forms/ examples Gig economy (e.g., Uber, Digital time banks (e.g.,
TaskRabbit), micro-task TimeRepublik) and local
platforms (e.g., Amazon exchange networks.
Mechanical Turk).
Skill specificity Often requires specific, Skills are typically broad and
measurable, or task-oriented community-oriented (e.g.,
skills (e.g., driving, graphic language tutoring, gardening,
design, coding). caregiving).
Type of exchange Monetary exchanges; services Non-monetary exchanges;
are rendered in return for participants "trade" time for
financial compensation. services or skills, using time
credits as the medium.

pg. 14 of 43
 Aspect Work-for-money platforms Time-bank platforms
Implications - Expands access to flexible - Builds community bonds and
work opportunities. trust.
- Monetizes underutilized skills. - Encourages social capital and
- Promotes efficiency in task reciprocity.
allocation. - Reduces reliance on
monetary systems.
Challenges - Risk of exploitation and lack - Difficulty in standardizing and
of worker protections. valuing different skills.
- Precarity in income and job - Maintaining active
security. participation and engagement.
- Platform control and - Overcoming limited
asymmetry in user-platform scalability and coordination
relationships. challenges.

3.3. The Sphere of Financing

Collaborative platforms have been also transformative in the realm of financial
exchanges. The chapter focuses on crowdfunding as a key mechanism of collective
fundraising, where individuals or organizations seek financial contributions from a
large pool of people, through digital platforms. The authors categorize crowdfunding
into two main groups: classic models and emerged models, highlighting their distinct
features, implications, and challenges.

Characteristics of crowdfunding models

Model type Definition Features Examples Challenges

Classical models
Reward-Based Contributors Incentivizes Platforms like Risks of delays
receive non- early adopters Kickstarter or or failure to
monetary and fosters Indiegogo. deliver
rewards (e.g., direct promised
products or engagement. rewards.
services) in
exchange for
their funding.
Donation- Contributions Appeals to Nonprofit- Relies heavily
Based are made altruistic focused on emotional
without motives and platforms like appeals and
expectation of philanthropic GoFundMe. can face donor
financial or causes. fatigue.
material return.

pg. 15 of 43
Model type Definition Features Examples Challenges
Equity-Based Contributors Attracts Platforms like Regulatory
invest in investors Seedrs or complexity and
exchange for looking for Crowdcube. risks
equity or returns on associated
ownership in investment. with
the project or investment.
company.
Lending- Contributors Enables access Platforms like Default risks
Based provide loans, to funding for LendingClub or and the need
typically repaid borrowers with Prosper. for strong
with interest. flexible terms. credit
assessment
mechanisms.
Emerged models
Royalty-Based Contributors Provides Platforms Revenue
receive a share ongoing focused on uncertainty
of revenue returns tied to creative and lack of
generated by project industries. standardization
the project. success. in agreements.

Do-It-Yourself Projects Empowers Independent Limited reach

(DIY) directly project campaigns or and the burden
organize and creators with small-scale of managing
manage their full control. efforts. logistics and
crowdfunding promotion.
campaigns,
often outside
of major
platforms.
Civic Focuses on Encourages Platforms like Challenges in
Crowdfunding funding local Spacehive. sustaining
community or involvement long-term
public projects, and collective engagement
such as parks, ownership. and meeting
schools, or diverse
infrastructure. community
interests.
Corporate Corporate- Aligns Campaigns Risks of public
Crowdfunding driven corporate tied to large skepticism
campaigns for social companies. about
specific responsibility corporate
initiatives or with public motives.
projects. engagement.

pg. 16 of 43
 Model type Definition Features Examples Challenges
Real Estate Pools Provides Platforms like Market
Crowdfunding contributions smaller Fundrise or volatility and
to invest in real investors RealtyMogul. regulatory
estate access to high- challenges in
properties or value markets. real estate
projects. investment.

4. Research Perspective: The Infrastructure of

Collaboration

4.1. Fab Labs: Collective Goods in the Collaborative

Economy
The story of Fab Labs (Fabrication Laboratories) illustrates how digital fabrication
technologies can revive and redefine traditional craftsmanship practices while
promoting innovation, collaboration, and inclusivity. They serve as a model for how the
collaborative economy can empower individuals and communities to become
creators and problem-solvers in the modern world. The authors explore the
emergence and significance of Fab Labs as a cornerstone of the collaborative
economy.

Fab Labs were established in 2001 by Neil Gershenfeld at MIT's Center for Bits and
Atoms as part of a course called "How to Make (Almost) Anything." The goal was to
explore how digital fabrication tools could empower individuals to prototype and
produce their own creations. Since their inception, Fab Labs have spread globally,
creating a network of decentralized workshops that share knowledge and expertise.
These labs function as community spaces, fostering collaboration, innovation, and
education. By 2021, there were over 2,000 Fab Labs worldwide, serving as accessible
hubs for technological democratization. Fab Labs leverage advanced tools like 3D
printers, laser cutters, and CNC machines, making technologies traditionally reserved
for industrial use available to the public. They emphasize open access, inclusivity, and
the empowerment of individuals to become makers and innovators.

Fab Labs represent a modern iteration of craftsmanship, blending traditional artisanal

practices with cutting-edge digital technologies:

• Customization and Creativity: Like traditional craftspeople, users of Fab Labs

design and create unique, personalized items, moving away from mass
production and embracing the individuality of handcrafted goods.

pg. 17 of 43
 • Skill Development: Fab Labs encourage the development of new skills,
combining manual dexterity with technological literacy, akin to the apprentice-
master relationship in craftsmanship.

• Community and Collaboration: Craftsmanship often thrived in guilds or

collaborative communities. Similarly, Fab Labs foster a sense of community by
connecting individuals who share knowledge, designs, and resources.

• Sustainability: Both Fab Labs and craftsmanship emphasize resourcefulness,

often focusing on sustainability and reducing waste by creating durable,
purposeful items.

4.2. Peer-to-Peer Platforms: Three Case Studies

In this chapter, the authors present three detailed case studies of peer-to-peer (P2P)
platforms, highlighting their unique features, operational models, and implications
within the collaborative economy. These platforms demonstrate the transformative
potential of P2P systems in redefining consumption, production, and services through
technology-driven, community-centered approaches. The case studies of Airbnb,
BlaBlaCar, and Gnammo illustrate how P2P platforms transform traditional modes of
consumption and service delivery. While offering significant economic and social
benefits, these platforms face challenges such as regulation, trust-building, and
scalability.

4.2.1. Airbnb and Short-Term Rentals

Airbnb facilitates short-term accommodation sharing, connecting property owners

with travelers seeking unique, localized lodging experiences. Through a seamless
booking and payment platform, Airbnb has expanded travel options and empowered
hosts to generate income from underutilized spaces. However, the platform faces
regulatory hurdles (e.g., zoning laws, taxes), concerns about its impact on housing
affordability, and criticisms regarding its effects on local communities.

4.2.2. BlaBlaCar and Carpooling

BlaBlaCar is a carpooling platform that connects drivers with passengers traveling to

the same destination. By optimizing unused car seats, the platform reduces
transportation costs and environmental impact while fostering social interactions
during shared rides. Trust is a key factor, with the platform using profiles, reviews, and
ratings to build confidence among users. Challenges include ensuring consistent
service quality, addressing liability concerns, and scaling operations across diverse
geographies.

4.2.3. Gnammo and Social Eating

pg. 18 of 43
Gnammo is a social eating platform that brings people together over shared meals. It
connects hosts—often amateur chefs—with guests who are willing to pay for unique
dining experiences in informal or home settings. The platform emphasizes
community-building and the cultural significance of shared meals while offering hosts
an opportunity to earn income or showcase their culinary talents. Challenges include
overcoming trust barriers between strangers, addressing food safety concerns, and
complying with legal and liability regulations.

Characteristics of the three case studies

Platform Focus Features Implications Challenges

Airbnb Short-term - Connects - Expands - Regulatory
accommodation property accommodation issues (e.g.,
sharing. owners with options for zoning laws,
travelers. travelers. taxes).
- Facilitates - Generates - Concerns
booking and additional about housing
payment income for affordability
through a hosts. and
digital community
platform. impact.
BlaBlaCar Shared - Matches - Reduces - Trust and
transportation drivers with transportation safety
(carpooling) empty car costs and concerns.
seats to environmental - Challenges in
passengers impact. scaling and
traveling in the - Encourages ensuring
same social consistent
direction. interactions. service quality.

Gnammo Social eating - Connects - Builds - Overcoming

hosts and community trust barriers
guests for through food between
shared meals sharing. strangers.
through a - Provides hosts - Navigating
digital with food safety
platform. opportunities to regulations
earn income or and liability
showcase their issues.
culinary skills.

pg. 19 of 43
FOUNDATIONAL
CONCEPTS AND
THEORIES
5. Network Effects: Demand-Side Economies of
Scale
The network effect (also called network externality or demand-side economies of
scale) is the effect that the number of users or amount of usage of a service has on
the value of that service as perceived individually by each user (Arthur, 1990).

Network effects occur when the utility or value of a product or service increases as
the number of users grows. Network effects may be direct or indirect, positive or
negative, and in same-side or cross-side (Øverby and Audestad, 2021):
• Direct network effects: Users directly benefit from a larger user base (e.g.,
social networks).
• Indirect network effects: Value increases through complementary products
or services (e.g., more users attract developers to create apps for a platform).

• The network effect is positive if the market feedback causes a perceived

increase in value (e.g., more users) that stimulates further increase in value
(users).
• The network effect is negative if the market feedback causes a perceived
decrease in value (e.g., fewer users) that stimulates further decrease in value
(users).
• Same-side network effects imply that an increased number of users lead to
an increase in value for other users in the same user group (e.g., Phones, social
networks, multiplayer online games…).
• Cross-side network effects imply that an increase in the number of users in
one user group enhances value in other user groups (e.g., Computers and
Software, Smartphones and apps, Facebook games, …).

Note that both same-side and cross-side network effects may be direct or indirect
and positive or negative. Hence, theoretically, there exist eight different types of
network effects—any combination of positive/negative, direct/indirect, and same-
side/cross-side network effects.

Furthermore, the dynamics of a market with network externalities are impacting

competition, efficiency, monopolization, and regulatory policy. Firms’ strategies within
this market present trade-offs with regards to compatibility and standardization.

Paper 1: Katz, M. L., & Shapiro, C. (1985)

This seminal work explores how network effects shape market behavior and
competition, develops a model that analyzes markets in which consumption
externalities are present, study the effect of these externalities on competition.

pg. 21 of 43
1. What are network externalities?
"Network externalities exist when the utility that a user derives from the
consumption of a good increases with the number of other agents consuming
the good."
2. What is the difference between direct and indirect network externalities?
-Direct network externalities (/direct physical effects) occur when the utility
that a consumer derives from purchasing a product depends on the number of
other who have purchased it (communication technologies).
-Indirect network externalities (/indirect physical effects) arise as the value
(number of consumers) of a product is influenced by a complementary product
(computer and software).
3. How do network externalities influence competition?
“The utility that a user derives from consumption of a good increases with the
number of other agents consuming the good. This implies that firms in markets
with network externalities face incentives to attract a large customer base
quickly to achieve a competitive advantage.”
4. What is product compatibility, and why is it important in networked
markets?
“Product compatibility refers to the ability of products from different firms
to work together or to use the same network. Compatibility is crucial in
markets with network externalities because it enables consumers to benefit
from a larger effective network size, increasing the value of the product to
users.”
5. What strategies can firms use to gain an advantage in markets with network
externalities?
"Firms may compete to build an installed base of users, as the size of the
installed base affects the expectations of potential buyers and can lead to a
self-reinforcing cycle of adoption."
6. What are the trade-offs of compatibility versus incompatibility for firms?
"Firms face a trade-off between making their products compatible to benefit
from the larger network and differentiating their products to maintain market
power and extract rents from their installed base."
7. How do network externalities impact market efficiency?
"The presence of network externalities can lead to inefficiencies in markets, as
consumers fail to account for the positive externalities their adoption decisions
create for other users, potentially resulting in either under- or over-
consumption of the product."

pg. 22 of 43
8. What is critical mass in the context of network externalities?
"Critical mass refers to the point at which the size of the installed base becomes
large enough that the value of the product to each user is sufficiently high to
ensure continued adoption by additional users.“
9. What role does standardization play in networked markets?
"Standardization plays a crucial role in networked markets by reducing
compatibility problems and ensuring that a large number of users can interact
with one another, thereby increasing the value of the product to each individual
user."
10. How can governments regulate markets with network externalities?
"Governments can regulate markets with network externalities by encouraging
or mandating compatibility, promoting competition, and preventing firms from
engaging in practices that could lead to monopoly power or inefficient
outcomes."

Reading 2: A Giant Reaches Out

1. How does the FirstBuild initiative demonstrate network effects?
FirstBuild's success depended on user participation and feedback, where the value
of the platform increased as more users joined and contributed ideas. This is an
example of direct network effects, where increased user engagement enhances
the utility of the community.
2. How does GE's Opal project illustrate network effects?
By involving a community in product development, GE created a feedback loop
that strengthened engagement, akin to the positive feedback loops in network
effects.
3. What type of network effect was created through GE's crowdfunding
campaign for the Opal ice maker?
The crowdfunding campaign generated indirect network effects by encouraging
early adopters to fund the product. Their contributions not only financed
production but also attracted more users and validated demand, reinforcing the
product’s credibility.
4. What characteristics of network effects are evident in the interaction
between GE and the online community?
The interaction shows positive feedback loops, where user contributions improve
product development, attracting even more users. It also highlights critical mass,
as the campaign needed enough participants to make the initiative viable.

pg. 23 of 43
5. How do externalities influence the success of the Opal project on digital
platforms like Indiegogo?
The project benefited from positive externalities, where each backer's financial
contribution and feedback increased the overall value of the campaign by
enhancing the product and encouraging broader participation.

pg. 24 of 43
6. Utility: Data-Driven and Data-Privacy Trade-Offs
In economics, utility refers to the satisfaction or value that a person derives from
consuming a good or service. It is a key concept used to understand and analyze
consumer behavior and decision-making. Utility is inherently subjective and varies
from person to person; what provides high utility to one individual may provide little
or no utility to another. Marginal utility, which measures the change in satisfaction
from consuming an additional unit, further refines this understanding. At its core, utility
explains how individuals make consumption choices based on their preferences and
available resources.

The concept of utility has undergone significant evolution with the emergence of
digital economics, transforming how goods and services are consumed, valued, and
experienced. Traditionally, utility was generalized, focusing on consumer preferences
for standardized goods and services. However, platforms like e-commerce and
streaming services now leverage big data and AI to personalize offerings, making utility
increasingly dependent on how well a service aligns with individual preferences and
behaviors. For example, recommendation algorithms on platforms like Netflix or
Amazon enhance perceived utility by tailoring options specifically for users.

A distinctive feature of the digital economy is the role of network externalities in

shaping utility. Utility often increases as more users participate in a network, as seen
in social media platforms and online marketplaces. For instance, the value of platforms
like Facebook or LinkedIn grows with their user base, enhancing utility for existing
participants. This network-driven utility introduces new dimensions absent in
traditional economic models.

Another major shift in utility within the digital economy is the growing emphasis on
experiences over ownership. Subscription-based models, such as Spotify and Netflix,
prioritize access to services rather than outright ownership of goods, fundamentally
altering how consumers derive value. Gamification in apps and online experiences
further influences utility by creating emotional and psychological benefits that extend
beyond functional value.

Digital goods, such as software, music, and eBooks, also reshape utility. These goods
often have near-zero marginal costs of production and distribution, and many are
offered for free—examples include Google Search and social media platforms.
However, the utility derived from such goods depends not only on their convenience
or functionality but also on non-monetary trade-offs, such as data privacy and
exposure to advertising. These trade-offs introduce complexities in how utility is
assessed.

pg. 25 of 43
The immediacy of digital services has added new dimensions to utility, such as time
savings and instant gratification. Services like streaming, online shopping, and on-
demand delivery have made speed and convenience critical components of
consumer satisfaction. Additionally, digital platforms enable peer-to-peer
interactions, such as reviews and social proof, which dynamically shape utility. For
instance, the perceived value of a product or service often increases if it is positively
rated by peers or influencers online. Social media further amplifies social utility, where
likes, shares, and visibility enhance the perceived value of interactions.

As companies collect and analyze vast amounts of user data, they can predict and
cater to consumer preferences, creating a feedback loop that continuously refines
utility. This shift moves the concept of utility from static preferences to adaptive, real-
time satisfaction. At the same time, the notion of scarcity in digital economics is
redefined. Artificial scarcity, such as through NFTs (non-fungible tokens) or
cryptocurrencies, generates utility based on exclusivity, ownership, and perceived
value.

Despite these innovations, digital economics also ties utility to broader externalities,
including privacy concerns, mental health impacts, and environmental consequences.
For example, while users derive utility from free social media platforms, there are
significant trade-offs, such as data exploitation and societal effects. These
externalities highlight the complex, multifaceted nature of utility in a digital-first world.

In conclusion, the concept of utility in digital economics is increasingly personalized,

dynamic, and context-dependent. It transcends the traditional focus on tangible
goods and monetary value by integrating elements of time, experience, network
effects, and social interactions. This transformation reflects how individuals perceive
and derive value in an increasingly digital world, where utility is constantly being
reshaped by technological innovation and changing consumer behaviors.

Paper 2: Puaschunder (2017)

1. How does the paper define utility in the context of privacy and information
sharing?
In the paper, utility is defined as the individual benefit or satisfaction derived
from the consumption or use of privacy and the sharing of personal information.
It emphasizes that individuals weigh the trade-offs between the utility gained
from sharing personal data (e.g., enhanced services, personalized content) and
the utility lost from potentially compromising their privacy (e.g., risk of data
misuse, loss of control). The theory suggests that individuals make decisions
based on maximizing their net utility, considering both the benefits and costs
associated with privacy and information sharing.

pg. 26 of 43
2. What role do privacy concerns play in the utility theory of information
sharing?
Privacy concerns are central to the utility theory of information sharing. The
paper suggests that individuals may experience a decrease in utility when they
feel their privacy is compromised, even if the benefits of sharing information
(e.g., personalized services, discounts) are substantial. Privacy risks, such as
data misuse or unauthorized access, can reduce the perceived value of sharing
personal data, and individuals may demand higher compensation or protection
in return for sharing sensitive information. Thus, privacy acts as a balancing
factor that reduces the overall utility of information sharing.
3. How does the paper explain the trade-off between privacy and utility in
economic terms?
The paper explains the trade-off between privacy and utility using an economic
framework where individuals assess the costs and benefits of sharing personal
information. The trade-off is driven by the fact that sharing information often
leads to increased utility through enhanced services, targeted advertising, or
personalized experiences. However, privacy concerns act as a cost or a
disutility, which reduces the overall net benefit. In economic terms, this is often
modeled as a comparison between the marginal utility gained from information
sharing and the marginal disutility of privacy loss. Individuals decide to share
information when the marginal benefit outweighs the marginal cost associated
with privacy risks.
4. According to the paper, what factors influence an individual’s decision to
share personal information?
The paper identifies several factors that influence an individual’s decision to
share personal information. These include:
• Perceived benefits: The utility gained from receiving personalized
services, better recommendations, or discounts.
• Perceived privacy risks: The potential harm or disutility from losing
control over personal data, including risks such as identity theft or
unwanted surveillance.
• Trust in the data handler: The level of trust an individual has in the
organization collecting or processing the data, which can affect their
willingness to share information.
• Compensation: The value of incentives offered in exchange for sharing
data (e.g., discounts, access to exclusive services).
• Context: The specific context in which data is shared, such as whether
the information is shared for social, professional, or transactional
purposes.

pg. 27 of 43
5. How can businesses apply the utility theory of privacy to improve
consumer satisfaction and trust?
Businesses can apply the utility theory of privacy by balancing the benefits and
costs of information sharing in a way that maximizes consumer utility. To
improve consumer satisfaction and trust, businesses should:
• Increase transparency: Clearly communicate how consumer data will be
used, stored, and protected, which helps reduce privacy concerns.
• Offer control: Allow consumers to control the data they share and give
them options to limit data usage, enhancing their sense of privacy and
trust.
• Provide appropriate compensation: Offer valuable incentives (e.g.,
personalized services, rewards) that justify the perceived loss of privacy.
• Build trust: Establish strong privacy policies and safeguard data through
secure technologies to reassure consumers that their privacy is
respected.
By doing so, businesses can encourage more information sharing, thereby
increasing utility for both the consumer and the company.

Reading 3: Hi, Robot!

1. How do machine learning and big data contribute to increasing utility for
consumers?
Machine learning and big data contribute to increasing utility by enabling more
personalized, efficient, and optimized products and services. By processing
large amounts of data, algorithms can tailor recommendations and decisions
based on individual preferences and behaviors.
2. What is the role of economies of scale in data collection in increasing utility?
Economies of scale in data collection help lower costs and increase the
efficiency of gathering and processing information. As more data is collected
the better the algorithms and systems become at refining services delivering
accurate and personalized value to consumers.
3. How has the concept of utility evolved in the digital age, according to McAfee
and Brynjolfsson?
With digital technologies, utility is now derived not only from tangible products
but also from intangible experiences like tailored recommendations,
personalized content, and the convenience of real-time data-driven services.
This shift reflects how the digital economy values access, personalization, and
optimization, rather than just the consumption of physical products.

pg. 28 of 43
4. How do machines and algorithms improve decision-making to increase
utility?
Machines and algorithms process large amount of datasets to identify patterns,
predict outcomes, and provide recommendations. They eliminate biases,
reduce errors, and enhance efficiency in decision-making, leading to increased
satisfaction and resource allocation.
5. In what ways does machine learning create a positive feedback loop in
increasing utility for consumers?
Machine learning creates a positive feedback loop through continuous learning
collaborative data sharing and innovation acceleration. This is done through
interaction with more users as they can gather feedback to improve
performance, enhancing collective performance and user experience.

pg. 29 of 43
7. Value Creation in Digital Business Models:
Strategic Pathways to Drive Stakeholder
Engagement and Economic Growth

7.1. Value Creation Models and Competitive Advantage

Øverby and Audestad (2021) identify three core value creation models in the digital
economy: value chain, value shop, and value network, each suited to specific
business contexts and offering unique ways to achieve competitive advantage.

The Value Chain model reflects the traditional linear production and delivery process,
where value is created by transforming inputs into outputs through a sequence of
activities. Competitive advantage in the value chain arises from optimizing efficiency,
reducing costs, and differentiating products. Although originally tailored for physical
goods, digitalization has enhanced value chains by automating processes, using data
to refine production, and enabling customization.

Value Shop focuses on problem-solving and applies to businesses like consulting

firms, healthcare providers, and R&D organizations. These entities create value by
addressing specific client issues through diagnostic and creative processes.
Competitive advantage stems from expertise, innovation, and the ability to deliver
tailored solutions efficiently. Digital tools like AI, big data analytics, and collaboration
platforms have amplified the effectiveness of value shops, allowing them to scale their
problem-solving capabilities.

Value Network consist of generating value by facilitating interactions among

participants, such as users, producers, and service providers. Examples include social
media, marketplaces, and telecommunications platforms. Competitive advantage in
value networks derives from strong network effects, where the value of the service
increases with the number of participants. Businesses that efficiently manage
relationships, ensure trust, and leverage data for personalization gain a substantial
edge in this model.

The authors further discuss the interplay of competition, cooperation, and

coopetition in the digital landscape:

• Competition: Digital markets often experience intense rivalry due to low entry
barriers and the global reach of the internet. Companies strive to outpace
others through innovation, superior user experience, and efficient use of data.

• Cooperation: Collaborative efforts, such as partnerships and alliances, enable

companies to combine strengths, share resources, and expand market reach.

pg. 30 of 43
 For instance, tech firms may collaborate on standard-setting or joint ventures
to develop new technologies.

• Coopetition: This hybrid approach involves competitors working together in

certain areas while continuing to compete in others. Such arrangements can
lead to shared benefits, like expanding the overall market or setting industry
standards, while maintaining healthy competition in core areas.

7.2. Classical vs. Digital Business Models

Classical business models focus on linear production and delivery systems,
emphasizing physical assets and direct transactions. In contrast, digital business
models leverage technologies like platforms, networks, and data analytics to create
value. Digital models prioritize scalability, user engagement, and adaptability, often
relying on intangible assets like intellectual property and user data.

Types of Digital Business Models:

• Platform Business Models: These models leverage digital platforms to

connect users, producers, or service providers. The platform acts as an
intermediary that facilitates interactions and exchanges. Examples include e-
commerce platforms, social networks, and content-sharing platforms.
• Subscription-Based Models: In this model, users pay a recurring fee to access
a service or product over time. This model is common in digital services like
streaming (e.g., Netflix, Spotify) and software-as-a-service (SaaS) products.
• Freemium Models: Companies offer basic services for free while charging for
premium features or enhanced functionality. Examples include platforms like
LinkedIn and Dropbox, where the basic service is free but users can pay for
additional features or storage.
• On-Demand Service Models: These models provide services or products as
and when needed, often through apps or digital platforms. The on-demand
economy has gained prominence with services like Uber (transportation) and
Airbnb (accommodation).
• Advertising-Based Models: In this model, businesses offer free content or
services to users while generating revenue through advertisements. Common
examples include Google, Facebook, and YouTube, where user data is utilized
to deliver targeted ads.
• Commons-Based Peer Production: This model involves the collaborative
production of goods or services by a community of individuals. Typically, the
contributions are voluntary, and the output is shared among the community.
Wikipedia and open-source software development (e.g., Linux) are prime

pg. 31 of 43
 examples of commons-based peer production, where users freely contribute
content or code that benefits the broader community.

Refer to Øverby and Audestad (2021) book for Digital Business Models analysis of
real-world case studies.

Reading 4: Ronteau et al. (2023)

The authors explore how digital platforms, data analytics, artificial intelligence (AI), and
cloud computing have become central to creating and capturing value in the 21st
century. The shift from product-based to service- and experience-driven business
models is highlighted as a major trend, with companies leveraging digital tools to build
continuous, adaptive, and customer-centric value propositions.

The authors explained new mechanisms for capturing value in digital business models.
They introduced concepts like subscription-based models, freemium services, and
on-demand economies, which have become standard in industries such as
entertainment (Netflix, Spotify) and transportation (Uber, Lyft). They also discuss how
platforms such as Amazon and Google have refined value capture by creating
ecosystems where both users and service providers generate value simultaneously.

One of the critical insights is the deep integration of digital technologies with business
strategy. The authors stress that firms must not only adopt technologies but also align
them with their overall business objectives. This includes understanding how to
leverage customer data, integrate machine learning for personalized experiences, and
use network effects to expand market share. A key theme is the adaptability of digital
business models, enabling businesses to scale and evolve rapidly in response to
changing market conditions and consumer preferences.

The book underscores the role of digital platforms in modern business ecosystems.
These platforms facilitate interaction between producers and consumers, creating
value through network effects. The authors explore platform economics, highlighting
how businesses such as Airbnb, Uber, and Amazon capture value by creating digital
marketplaces. The chapter discusses the advantages of platforms in terms of
scalability, low marginal costs, and rapid market penetration, while also addressing
challenges such as platform governance, competition, and regulation.

The shift from traditional to digital business models requires new approaches to
competition and cooperation. The authors introduce concepts like coopetition (a mix
of cooperation and competition) and the importance of strategic partnerships in
platform ecosystems. Digital businesses often collaborate with competitors to
expand market reach or share resources, which is a departure from the traditional
competitive mindset. The book also explores how businesses can build competitive

pg. 32 of 43
advantage through strategic alliances and by leveraging the crowd economy, where
users create value through content creation, reviews, and social engagement.

The book concludes with recommendations for business leaders to stay ahead of the
curve in the digital age. It stresses the need for agility, continuous innovation, and a
deep understanding of data-driven business models. It also highlights the importance
of considering ethical and regulatory aspects, as digital platforms and business
models create new challenges related to privacy, market dominance, and labor
practices. Policymakers are encouraged to create frameworks that foster innovation
while addressing the potential negative externalities of digital business practices.

pg. 33 of 43
CONCLUSION
8. Classical vs. Digital Economics: How have economic aspects changed?
Aspect Classical Economics Digital Economics Challenges, Risks, and Cons
Market Relies on physical marketplaces and Operates through online platforms, Market centralization around a few
Structure and face-to-face interactions. Self- enabling global reach and real-time dominant platforms.
Mechanisms regulating nature of the market and transactions. Reduced market diversity due to
decentralized decision-making Centralized (/programmed) decision- increased acquisitions of potential
(Invisible hand). making due to algorithms, network competitors, dependency on
effects, and data. dominant platforms, algorithmic bias,
and barriers to entry for smaller
businesses.
Production Structured around physical Scalable production due to near-zero Over-reliance on technology
and Industrial production and distribution. marginal costs. infrastructure, job displacement in
Organization traditional manufacturing sectors.
Consumption Consumption is limited by Digital goods and services can be Digital divide excluding those without
geographical and physical consumed globally without physical access to technology,
constraints. limitations. overconsumption of digital media
leading to productivity loss.
Pricing Prices are influenced by tangible Dynamic pricing models are Algorithm-driven price
factors like production costs and prevalent, influenced by algorithms discrimination, lack of transparency
physical supply chains. and real-time data analytics. in pricing, potential for price collusion
through AI.

pg. 35 of 43
Aspect Classical Economics Digital Economics Challenges, Risks, and Cons
Competition Competition is localized and based Global competition often leading to Increasing barriers to competition,
and antitrust on physical presence. Focuses on winner-takes-all. anti-competitive behaviors by
preventing monopolistic practices. Deals with platform dominance, dominant digital platforms.
network effects, and algorithm-driven Difficulty in defining market power in
collusion. digital contexts and challenges in
regulating algorithms.
Regulation Governed by established laws and Necessitate new policies for digital Regulatory lag, jurisdictional conflicts
regulations specific to physical goods assets and transactions. in cross-border digital trade, and
and services. enforcement challenges in digital
spaces.
Innovation Innovation is incremental and Emergence of new forms of Rapid obsolescence of technologies,
resource-intensive. innovation (collaborative). Often ethical concerns with AI-driven
characterized by radical and rapid innovation, uneven access to
innovation cycles. resources for innovation.
Utility Derived from tangible goods and Derived from digital goods, services, Potential over-reliance on digital
services. and experiences. services, erosion of traditional forms
of utility, digital addiction risks.
Value Value is created through physical Value is driven by network effects Data privacy concerns, exploitation
Creation labor and capital throughout the and data. of user data without consent,
chain of production and distribution. difficulty in measuring intangible
value creation.
Business Manufacturing- and retail-based Platform-based businesses and Platform dependency risks and
Models models. digital marketplaces. pressure on traditional businesses to
adopt new models rapidly.

pg. 36 of 43
Aspect Classical Economics Digital Economics Challenges, Risks, and Cons
Costs Influenced by physical goods, Influenced by digital goods and Long-term costs of obsolescence,
transportation, and storage. High services. High fixed (implementation new regulatory and compliance
costs to search information, replicate and maintenance) costs and low costs, outcompeting smaller
(significant marginal costs) and search, replication (near-zero business, and significant
distribute products. marginal costs), transportation, cybersecurity and data management
tracking, and verification costs due to costs.
digital information.

pg. 37 of 43
9. Digital Economics as a Complex System

The digital economy, characterized by its unprecedented speed, scale, and scope,
fundamentally differs from the classical, non-digital, economy. Processes are
accelerated by factors of thousands, scales expand by hundreds, and scope evolves
by tens. This economy operates as a multilayered, interconnected system, ranging
from individual interactions to global entities such as multinational corporations and
international bodies. It comprises numerous subsystems—e-commerce, mobile
communications, and internet marketing, among others—each interacting
dynamically. These components collectively self-organize and adapt, forming a highly
complex adaptive system. This complexity, defined by non-linear interactions, path
dependence, and sensitivity to initial conditions, challenges traditional economic
models. As the digital economy co-evolves with advancements in complex systems
science, computational modeling, and data analysis, it is increasingly evident that
understanding and predicting its behavior requires abandoning conventional
equilibrium-based models in favor of approaches that embrace non-equilibrium
dynamics and emergent properties.

Delic, K. A., & Johnson, J. (2024).

pg. 38 of 43
 REFERENCES

Belleflamme, P., & Peitz, M. (2021). The economics of platforms: Concepts and
strategy. Cambridge University Press.

Delic, K. A., & Johnson, J. (2024). The digital economy as a complex system.
Ubiquity. https://doi.org/10.1145/3679025

Demary, V., & Rusche, C. (2018). The economics of platforms (IW-Analysen No. 123).
Institut der deutschen Wirtschaft (IW). https://www.iwkoeln.de/

Goldfarb, A., & Tucker, C. (2019). Digital economics. Journal of Economic Literature,
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Katz, M. L., & Shapiro, C. (1985). Network externalities, competition, and

compatibility. The American Economic Review.

McAfee, A., & Brynjolfsson, E. (2017). Machine, platform, crowd: Harnessing our
digital future. W.W. Norton & Company.

Øverby, H. & Audestad, J. A. (2021). Introduction to digital economics. Springer.

Puaschunder, J. M. (2017). Towards a utility theory of privacy and information

sharing and the economics of privacy. In Proceedings of the 2017 IEEE 15th
International Symposium on Autonomous Decentralized Systems (ISADS)
(pp. 218-225).

Ramella, F., & Manzo, C. (2021). The economy of collaboration: The new digital
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The new value creation and capture mechanisms of the 21st century. De
Gruyter.

pg. 39 of 43
Faculty of Law, Economics and Social Sciences of Ain Chock

Hassan II University of Casablanca, Morocco

Master

Strategy and Leadership

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