Critical Issues of Media Economics
First class 1/10/2021
Introduction
Is this a market just like any other market? It’s not.
What are the consequences for society?
Is privacy under threat? We should understand what is behind these controversies around privacy, not
only from a consumer perspective. Is privacy harmful? There are some people who think it is, because it
could be harmful for the economy. Is privacy dead?
This course will treat a number of current issues that are critical for the domain of digital media in
Europe.
Examination: oral exam with written preparation, you’ll have time to prepare your answers. You’ll have
to demonstrate your knowledge about topics treated in course. You need all 4 c’s to succeed in this
course and in the oral exam: concepts + complete + concrete + critical. Complete: show what you
know, develop the concepts. Concrete: give examples, you should always give examples. Critical: you
have to give arguments and you have to justify what you are saying, answer to the why aspect.
Introduction to media economics
Media provide us with information and entertainment…
IN MEDIA::::::
IN SCOPE: radio, TV broadcasting, newspapers,..
PARTLY IN SCOPE: rest of the cultural industry (music, films and games)
OUT OF SCOPE: one-on-one (two way) communication ð This changes with the new media
Main objectives of media: to provide factual information, opinions and entertainment
Media economics: media and cultural goods have specific economic characteristics, media economics is
not just about the material layer of society.
1) Content media: you and a content
2) Connectivity media: you and people in your life
3) Context media: (uber, Airbnb)
The media sectors who are thinking in the intermediation business which once was a small part of
economy, with connectivity media it became much bigger, but still had to do with adv. Now with
context media every company behaves like a media agency (uber needs to know about creating a
digital platform that engages the customer)
, - PICARD, three media economics traditions.
-
- 1) theoretical: economic theories applied to media to explain policy makers choices.
- 2) Applied school: graps topical trends and changes in economy and consumer behaviour to
help policymakers formulate responses.
- 3) critical school: inform public policy on the interplay between political, economic, social and
cultural factors. These approaches are complementary and seem to blend increasingly.
- Media pervades everything now. It’s mainstream now, before it was niche.
- “critical issues” there are some contentious issues and debates, f.i. link between infrastructure
and power (media has layers) (how the internet killed the phone business, the economist was
depicting the end of the telecommunication). The jury is still out, they have found a way to co-
exist. They have two conflictual business model (the charging one and the more free one). In the
middle, there is the media sector (journalists). That is the real issue that will be evicted.
- Microsoft was considered evil because it was a giant in the IT company.
-
- A new narrative came along. Internet was generator of different companies, everybody can
have their own company. Chances for everybody. Maybe the truth is in between. There are some
giant companies that are not going away, but there are just more big and they found a way to co-
exist. There are many ad- developers in there. Their power has an impact on different aspects of
our life. The model introduced is that one, the context media. Airbnb is the Netflix of hospitality.
The type of model implemented is of huge importance, it is a critical issue.
-
- Governments don’t want to see big companies and too much power in their hands. Free
competition can’t work, they have too much power to impact our life. Regulator thinks it can be
an abuse of monopoly. This determine what our economy will look like in the next decade.
Why media economics?
- Why is there no course on Washing Power Economics, while there is a course on Media Economics?
• Media and cultural goods have specific, divergent economics characteristics
• Media economics is not just about ‘material’ layer of society, but also about ‘symbolic’
§ Virtual, symbolic side of economy is growing strongly
§ Specific public interest in outcome of economic processes in media sector (i.e.
because of huge ‘external effects’
• What is so different?
§ Specific characteristics of media good itself
§ Specific supply and demand characteristics
§ Specific industry and market structures
§ Specific interests
, 1. MICROECONOMICS: BASIC ASSUMPTIONS
Basic assumptions: the producer needs to know the costs of his product, but he needs to know about
the opportunity costs. The consumer needs to know about the utility, what is the use that I’ll get out of
this bike, but he also needs to think about potential alternatives. For example, do I need a bike or a
phone? The producer needs to determine how many bikes he is going to produce, also the consumer
asks himself how many bikes he is going to need. From a consumer perspective, if the price is very low,
a lot of people will buy the bike. However, from the producer perspective, if the price is very low, it will
not be a good investment. If more bikes are sold, the price will be lower as well. However, if the
demand suddenly is higher, then the price goes up as well. The individual producer needs to know how
big his company is going to be. The marginal cost is the cost for producing every additional product. If
the marginal cost drops, the company becomes efficient. The law of diminishing returns.
In a market there is always a producer and a consumer.
Ex. Business of bikes
• We are buying a bicycle
• Producer has produced a good and consumer wants to buy it: there is a transaction
(ownership is transferred)
§ Transaction (what to keep in mind)
Producer: how much did it cost me to produce this bike (essential information)
(= production cost) + what could I have produced otherwise (could I produce
something else? (= opportunity cost)
Consumer: does not care about costs of production-> thinks about what he can
do with the bike, needs to value this in his mind (the value of the bike, his need
for a bike) (=utility) + considering possible alternatives, where could I get most
utility from? (could also buy something else with his money)
ð Both need to do this rational calculation: they don’t have unlimited time, money, resources,
…. -> need to make a decision
(Producer: how many bikes I will bring on the market and the price: quantity and price)
(Consumer: how many bikes I will buy and the price I am willing to pay: quantity and price)
• But producer and consumer are not the only one on the market: supply side and demand side
They are not alone: there is a supply side and demand. They have something to do with each other
between the amount produced and the costs of making it. Same for the amount demanded and the
price consumer are willing to pay. Where those two lines meet eachother, there is an EQUILIBRIUM.
§ where demand and supply side cross, this will be the equilibrium (= quantity of goods
that will produced and consumed against this price)
, § What happens when another bike enters market: (demand side: more demand, than
equilibrium shifts, more bikes are sold, and the prices rise)
ð This happens only in free market: nobody is able to manipulate price and quantity
Amount of bikes produced for a specific price for the market to be completely efficient (all the bikes
produced will be sold). The equilibrium can shift according to different issues.
Issues: how do I producer know how many bikes should I produce? The price is fixed by the market,
so I have to consider marginal cost (the cost of producing one more item). That fluctuates and it is
different along the whole cycle, as I expand my production. If I produce only 1 bike, the marginal cost
is huge.
I need a small factory and employees for only one bike, so it’s not efficient. The more I produce, the
less is the marginal cost.
Where the price line touches my Marginal Cost line I have my costs below the market price, and that
equals my revenue. The lowest point of the curve is where I am more efficient and the maximum
amount of profit I can ever hope for. After that point, it starts raising again. If I keep on growing, it
becomes less efficient.
I need to expand, buy a land, I need more people, there is a trade union with their demands with
their demands, materials struggle to arrive, I am not the only boss, I need to start exporting. I am less
efficient after a while. The law of diminishing returns (that’s what creates free competition that
decide the prices). I don’t stop producing. I cross the line again with the market price and it would be
idiot to keep producing, because I would lose money. I stop either expanding or producing.
All of these notions are problematic in media.
è = Law of diminishing returns
