5. Markets and Networks

An Agreement between them to exchange goods

• does need to involve money

• goods: can be goods, services, currecny, combination of these things

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The transaction costsare expenses incurred when making a transaction

Money, barrier to communication, barrier to information

zero communication means the transaction costs are too high to overcome

A marketis a medium that allowsbuyers and sellersof a specific good to interactin order to facilitate a transaction

can be a physical marketplace where people come together or a virtual marketplace electronic/online/digital market

Examples are : Stockmarket, willhaben, ebay, vinted, Amazon, Apple AppStore

• spontaneous coordination mechanisms based on the rationality and self-interest of economics participants

• Open to everybody

• After completed transaction no future commitment

• volatile, non-repetitive transactions that require no transaction-specific investment

• Controlled by prices (each participant optimizes)

• Prices contain / carry information

•Matching buyers and sellers (search and negotiation)

•Facilitating exchange of goods / services and payment

•Providing institutional framework (rules)

large number of buyers and sellers

perfect information

no barriersto entry or exit

homogeneous goods whicha are subtle to each other

rational actors (take decisions to maximize self interest; utility of sellers, profit of buyers)

zero transaction costs

no government regulations, and noprice setters

Asset Specificity. The more specific an asset, the more difficult is to reuse in other transactions

Frequency. How often trading actors perform transactions. Setup expenses are amortized over transactions

Uncertainty. Stems from bounded rationality and opportunistic behavior. Also from complexity.

The more complex an item is, the more likely it is, that that transaction is organized in a hirachy.

The combination of cooperation and competition between participants of a network is called coopetition

Networks are a “middle way” between the loose coupling of markets and tight relationships of hierarchies

Long-lasting relationships protect against the loss of critical resources and enable the integration of activities

Intermediate

Lying or occurring between two extremes or in a middle position or state.

Match of demand and supply

Pricing inefficiencies

•Intermediaries are pooling and buffering supply and demand (issues of volume and predictability)

•Often better prices due to better market knowledge and volume

Electronic intermediaries that control information flow, often aggregating information and selling it

•Double sided market

Intellectual property (IP) refers to creations of the mind, such as inventions; literary and artistic works; designs; and symbols, names and images used in commerce.

IP is protected in law by, for example, patents, copyright and trademarks, which enable people to earn recognition or financial benefit from what they invent or create.

Moral rights:The right to be attributed as the author/creator, and to ensure that the work is reproduced in a manner that does not offend the author/creator.

•Economic rights: The right to produce copies and to make the work available. This includes the right to:

•Reproduction of the work: For example to make paper copies and the right to digital archiving.

•Distribution of the work: For example by sale, loan or rental of the work.

•Public display and performance of the work: For example a lecture or a musical performance, to send an article by e-mail, or to make an article or book available on the Internet.

•Transformation of the work: For example translation of a book.

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A patent is a form of legal protection granted by a government to an inventor for a certain period of time, typically 20 years from the date of filing. It gives the inventor exclusive rights to prevent others from making, using, or selling the invention without their permission.

Trademarks exist as consumer protection: trademarks empower manufacturers to punish rivals who misleadingly market competing products or services that are like to cause confusion among their customers.

A word or a combination of words, letters, and numerals

•Drawings, symbols

•Three-dimensional features such as the shape and packaging of goods

•Non-visible signs such as sounds or fragrances

•Color shades used as distinguishing features

• Digital rights management (DRM) tools are used to control access to proprietary hardware and copyrighted works

• DRM tools can include product keys, limited install activations, persistent online authentication, copying restrictions, tracking, and digital watermarks

• DRM may involve the use of disappearing license authorities, meaning there may be limitations on your ability to access content indefinitely

• DRM is often used to protect the copyright of digital media and prevent unauthorized access or copying