Economics of digitization

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The economics of digitization is the field of economics that studies how digitization, digitalisation and digital transformation affects markets and how digital data can be used to study economics. Digitization is the process by which technology lowers the costs of storing, sharing, and analyzing data. This has changed how consumers behave, how industrial activity is organized, and how governments operate. The economics of digitization exists as a distinct field of economics for three reasons: it studies a world that is digital, exponential and combinatorial. First, new economic models are needed because digital goods have very low or even zero marginal costs unlike most traditional goods, thus many traditional assumptions no longer hold in a digitized world. Second, the rate of improvement of computers, networks and other engines of digitization, is exponential, as reflected by Moore's Law. Third, digital goods can easily be combined and recombined, increasing their value not only via networks and platforms, but also novel combinations. Each of these effects is important individually, but together they have synergies and constitute a distinct economic landscape.^[1]

Research in the economics of digitization touches on several fields of economics including industrial organization, labor economics, and intellectual property. Consequently, many of the contributions to the economics of digitization have also found an intellectual home in these fields. An underlying theme in much of the work in the field is that existing government regulation of copyright, security, and antitrust is inappropriate in the modern world. For example, information goods, such as news articles and movies, now have zero marginal costs of production and sharing. This has made the redistribution without permission common and has increased competition between providers of information goods. Research in the economics of digitization studies how policy should adapt in response to these changes.