Every academic year at the Louvain School of Management, about 500 master theses are defended. Research topics span all disciplines of management science. In their research, students either address a practical issue raised by a particular organization or aim at contributing to the theoretical or empirical literature in management.

This year, four theses had to do with crowdfunding. We describe here three of them (the fourth, by Camille Storme, details the business processes of MyMicroInvest and is, quite naturally, confidential); we also make the full texts available.

• In “Facteurs de succès et d’échec des campagnes de crowdfunding : Les enseignements de la base de données KissKissBankBank”, Charlotte Lamine replicates the analysis of Mollick (2013) by using recent data from the French crowdfunding platform KissKissBankBank. Charlotte’s analysis mainly confirms Mollick’s results; some extensions are also provided to complement the analysis.
• In “Le crowdfunding: bilan et perspectives”, Michael Riga examines the development perspectives for crowdfunding in Belgium. To this aim, he performs a qualitative analysis of the Belgian crowdfunding scene by interviewing a number of key stakeholders: two executives from two crowdfunding platforms (MyMicroInvest and Look&Fin), three entrepreneurs who raised funds through crowdfunding, one senior official from the FSMA (Financial Services and Markets Authority), and the President of Euronext Brussels. One of the main conclusions drawn from Michael’s analysis is that Belgian crowdfunding platforms currently operate at an insufficient scale. To develop, they should expand outside Belgian but the difficulty there comes from a lack of harmonization of the regulations at the European level.
• Aurelie Bekaert further develop this issue in “Drivers and Barriers for Cross-Border Crowdfunding: Evidence from Belgian Stakeholders”. Her research aims at identifying features that impact the practice of cross-border crowdfunding and at providing evidence from Belgian crowdfunding stakeholders (platforms, projects initiators and funders). The interviewees express their need to expand crowdfunding over Belgian borders: platforms want to expand their activities in order to generate more revenues; projects initiators see international crowdfunding as a vector to reach more people; funders hope to find a wider set of interesting campaigns on the international scene.

Because of their original data sets and their complementary nature, these three theses should be of interest for all researchers in the field of crowdfunding. Furthermore, all three theses start with comprehensive and up-to-date reviews of the literature on crowdfunding.

Economic issues

The picture of the copyright industry that we outline in the third post of this series has many economic consequences. An important one deals with the economics of mediatisation and its impact on creation or diversity. Another with the role of copyright and related internalisation strategies.

Each copyright industry is now confronted with a change of its ecosystem, which affects both mediatisation and distribution. And which in turn, loops back onto production. This process is uneasy to address in a general way because each industry evolves within its own ecosystem. Moreover, each public figure – artist, author, columnist, sportsman, politician, etc. – behaves like an autonomous brand, generating its own topicality, building its own community on social networks.

intellectuallicensing.com

From a microeconomic standpoint, the utility of a copyrighted works can be termed as the sum of the expression and its associated mediatisation. When the mediatisation is subject to network effects, its utility grows with its coverage and with the consumption of the mediatised good. Copyright industries – from the serialized novels published in the newspapers to the Hollywood star-system (Caves, 2000) – have always been confronted with the necessity to generate network effects around brands and branded products. In the analogue world, such network effects were obtained through well-tested strategies combining a release investment calibrated to reach a critical mass and a media reverberation buzzing on the product. And when the buzz was feared to be negative, then the release investment was made to avoid it. (Cf. the case of the Hollywood “ten-ton turkey” release commented by Richard Caves (2000) p.166.)

An open question concerns the achieving of such network effects in digital ecosystems. According to a recent consulting study,

“total global artist income from recorded music in 2013 was $2.8 billion, down from $3.8 billion in 2000 but up slightly on 2012. Meanwhile artists’ share of total income grew from 14% in 2000 to 17% in 2013 (Mulligan, 2014).

But the top 1% artists grasped 77% of this revenue making digital recorded music a “superstar economy”. This suggests that network effects may be more massive but less accessible in digital ecosystems than in analogue ones. Such a trend would favour on the one hand, big incumbent artists whose long lasting presence grants a critical mass (a lower access cost to media), and, on the other, new artists showing extravagance enough to saturate news and social media (Rihanna, Psy, Lady Gaga, Miley Cyrus…). In other words, the competition for network effects in global digital media seems to induce more “winner-takes-all” behaviours than in the analogue walled ecosystems.

The current paradox of digital ecosystems is that works have become accessible through nearly infinite databases but they are less extensively consumed than in the analogue system. Some more empirical evidence is required to validate such hypothesis, but whether true or not it means that the “long tail” theory (Anderson, 2004) is seriously challenged by the economics of mediatisation. In effect, the diversity of creation – when related to effective consumption – relies more on mediatisation economics than on the productivity of search. A key issue both for economists and media is to design mediatisation models that could enhance the notice of niche products.

Mediatisation economics has long been associated with marketing or advertising whose external effects on sales are difficult to quantify. Simply because the utility of the meaningful complement relies on network effects that are as hazardous to predict as the success of creative works. However, more and more consulting firms are now measuring brands digital presence and their apparent valuation by consumers. Such data, if their collection costs are affordable, might be used to model the network effects associated with mediatisation procedures. (According to our experience, the collection of homogeneous data picked up from various digital media sources requires a dedicated task force with a high fixed cost. The specificity of each mediatisation scheme tends to inhibit such an investment.)

Copyright policy implications

Last, but nor least, the growing importance of mediatisation changes the traditional vision of copyright exploitation. While copyright was for long identified as a way to internalise creation efforts, it is also a way to internalise mediatisation strategies. In a media ecosystem, a copyrighted good can be given for free if its consumption increases its media component. This means first, as noticed by various authors, that piracy or counterfeiting can prove socially useful. Not because it provides access to a lower segment of consumers (Watt, 2000). But because it can raise the utility of the good (the media component) and then, generate a higher willingness-to-pay that is collectable where excludability can apply (as already explained by Paul Belleflamme on this blog).

It also means that the previous consent of copyright holders may raise transaction costs preventing them to benefit from mediatisation opportunities. The “notice and take down” procedure applying on digital platforms corresponds to an ex post consent that allows some right holders to better internalise many spontaneous mediatisation efforts. At the cost, of course, of a careful watch of their product mediatisation. The case of the countless parodies posted on YouTube that can be withdrawn on right holders’ request illustrates this trend. Parodies are pieces of the informational complement that add value to the original copyrighted expressions.

The previous consent rule should then apply but with lenience. A too stringent behaviour would prevent right holders from valuable media externalities. Conversely, take down notices corresponding to an effective internalisation decision of the right holder should involve the responsibility of the noticed intermediary. This is the point where copyright enforcement now meets tort law (Lefort, 2013).

More generally, the dissemination of copyrighted works is anything but natural. Following the B&M premise, the utility of copyrighted expressions relies on a media complement produced through publishing and progressive dissemination. Such complement carries network effects and, thanks to its contextual dimension, allows right holders to gain from economies of scale in publishing other works. This point is clearly underestimated by the economic literature. It explains why the Copyright Term Extension Act (CTEA, 1998) has been mocked by so many conventional economists while supported only by a few copyright experts (Liebowitz and Margolis, 2004): the loss of property rights on the Mickey Mouse cartoons would have, no doubt, spoilt the Disney brand and its ability to mediatise new works. Hence, the economics of mediatisation deserve more research and quantitative analysis. It should also promote a better coordination between trademark and copyright law.

Media ecosystems

The term ecosystem is primarily used in biology do designate a community of living organisms (plants, animals and microbes) in conjunction with the non-living components of their environment (things like air, water and mineral soil), interacting as a system (Wikipedia). These biotic and abiotic components are regarded as linked together through nutrient cycles and energy flows. Willis (1997) traces back the history of the concept and its adaptation to the description of natural systems. Ecosystems are defined by the network of interactions among organisms, and among organisms and their environment. They can be of any size but usually encompass specific, limited spaces.

By analogy, a business ecosystem applies to a community of economic agents interacting for the balance of all, in a framework favourable to externalities (Teece, 2007).

A business ecosystem finds its roots in the idea of value networks and can be seen as a group of companies, which simultaneously create value by combining their skills and assets. Business ecosystems create value for a participant only when the participant is not capable to of commercializing a product or service relying on its own competences. (Clarysse, Wright, Bruneel, Mahajan, 2014, p.1164)

The concept of ecosystem differs from the one of industry, market or sector, because it relies on the prevalence of external effects. Quite frequently, the externalities come from private or informal information exchanges – on individuals, organizations or institutions – that decrease transaction costs and favour various forms of business clustering. Such kinds of ecosystems could be called “transactional” since most of the externalities come from the impact on transaction costs of circulating knowledge, informal relations and institutional information.

Similarly, one can consider that a communicating society runs like a biotope in which public messages are received and re-emitted by media. Media interaction participates in society coordination although media are not systematically linked together by formal or contractual relations. As such ecosystem contributes to the production of a “favourable notice”, the participants rely on it to commercialize their products. Quite often, “the skills and assets” that are shared by media deal with trademarks or talent names equivalent to “brands” that provide a meaningful context to goods or expressions (Bomsel, 2013). The mediatisation of people, firms or goods proceeds from ecosystems dedicated to specific products. One can distinguish the ecosystem of books, the one of the news, of scientific papers, of plastic arts, of music, of cinema, of sports, etc. But there is also a media ecosystem for fashion, luxury goods, cosmetics, automobile, food, drugs, etc. While transactional ecosystems decrease transaction costs between the participants, media ecosystems produce the public image – the informational complement – of business or institutional agents and their related products.

Digital technologies are bringing new media in all ecosystems: online newspapers and magazines, blogs, science portals, audio and video platforms, social networks… The echoing of the news, for instance, can follow many new routes and reach consumers faster and wider than could the pre-digital media. Moreover, the connection between advertising or mediatising a product and its actual purchase by a customer can be internalised through online procedures: an html link will transform a viewer into a purchaser, an audio or video platform teases for free until the viewer decides to pay for a service. As a consequence, the borders between mediatisation and sales tend to blur. This trend affects the economic means used to internalise the externalities of the media ecosystem. This is particularly sensitive in all the copyright industries that produce expressions to be distributed in a dematerialised form.

The mediatisation of copyrighted expressions

Copyrighted expressions are informational goods that have to be mediatised. An inspired poem or a scientific theorem posted on an anonymous blog will remain unnoticed. The release of a novel, of a scientific article, of a music tune, of a movie or a TV series, of a sports event, follows a symbolic route constituting a publishing protocol. The public image of a movie disclosed at the Festival de Cannes will differ from the one of a blockbuster presented in a Hollywood showy opening, and even more from a B movie released straight on DVD. The mediatisation of copyrighted expressions adds meaning and value to the works. It is achieved through a media ecosystem providing a direct and indirect echo to the works.

Copyrighted expressions differ from other goods by the fact that, being non-rival, they can be mediatised through free consumption. Thanks to external effects, the supply of free copyrighted works can be financed by ads paid by other firms, by authors (gold open access reviews), or by other contents bundled on a publishing platform. Digitization, which extends the non-rivalness thanks to the dematerialisation of the supports, increases the potential of mediatisation through free consumption. Hence, the coexistence of free and pay content – news, music, video, scientific articles, sports, etc. – on the same digital platforms, tends to narrow the gap between mediatisation and distribution.

In effect, a media ecosystem reflects a state of the technology. Let’s take the case of music. Under the phonographic period, music was taped on records and mediatised through record sleeves, radios, concerts, magazines, video clips and record shops. The radios had to notice the release of the records and to start the buzz. Competition between record producers gave even rise to the payola system – a bribe to disc jockeys in order to get aired – that was depicted by Ronald Coase (1979) as a hidden publicity. Concert tours were keeping the topicality of the artists. Magazines were feeding fans with stories related to music performers. At the end of the chain, record shops were the ultimate media displaying the sleeves and their assortment in racks. In this ecosystem, most of the relations between copyright holders and media were internalised by formal arrangements. The production and sales of records was shaping the ecosystem. Broadcasters were paying license fees while getting paid through publicity. Showcase and tour operators were hiring performers as to sell tickets and drinks. For the most popular artists, record producers invested in video clips and TV ads. Distributors were rewarded on record sales. Only a few players (magazines, talk-shows, variety-shows) benefitted from informal cross-externalities.

With digitization, the phonographic ecosystem gets supplemented both on the media and the distribution side. On the media side, streaming platforms and social networks can create and amplify a buzz that was formerly produced by showcases and radios. The online press will link a music review to a playlist that is just one-click from the reader. TV promotion is re-focussed on ads and talent shows whose viewers argue on social networks. On the distribution side, music downloads and, increasingly, streaming services substitute to CD sales.

A key pattern of this trend is the convergence of mediatisation and distribution. Streaming platforms deliver both mediatisation – through free access service and discovery or thematic apps – and distribution. On such platforms, a subscriber can share his playlists with his social network’s friends. Thus, a listener can become a disc jockey, now called a curator, getting followers for his selection service. On video platforms, amateurs can post video parodies that will increase the popularity of the original. Right holders can either accept or refuse such parodies and even, for a commercial use, license performers their music publishing rights. In other words, with the continuous surge and rollout of new media, the music ecosystem gets denser and denser making the internalisation strategies more open and flexible than in the past.

What happens with music also happens with books, scientific articles, news, sports, cinema, TV series… Each copyright industry – characterised by the production and the publishing of specific expressions – is confronted with the surge of new media that change its former ecosystem. For a while, this change has been perceived as a dematerialisation arousing competition or cannibalisation between distribution channels. This view was suggested by the vertical design of the industry resulting from the copyright transaction chain and the distribution of material supports.

Actually, the change is far more sophisticated. The newness of the digital ecosystems is that mediatisation gets blurred with distribution. In other words, digitization makes copyrighted works distribution a particular case of mediatisation. This already existed when, for instance, radio stations had to pay license fees to mediatise music. But with digital ecosystems, such practises are widespread and continuously expanding. This in turn, makes internalisation – copyright exploitation – an iterative process adapting to new media, new practises, requiring new contracts and new pricing schemes.

The last post of this series examines economic issues and policy implications related to media ecosystems.

Source: triplepundit.com

A number of posts on this blog have already dealt with multisided platforms (see here) and with crowdfunding (see here). My aim with this post is to link the two topics and show that crowdfunding platforms are a prime example of multisided platforms.

Crowdfunding platforms (CFPs) facilitate the interaction between entrepreneurs trying to raise funds and consumers/investors willing to participate in the financing of new projects. Why can they be seen as multisided platforms? As Evans (2011) explains it, a business opportunity emerges for a multisided platform when three conditions are met:

1. There are distinct groups of customers.
2. A member of one group benefits from having his demand coordinated with one or more members of another group; in the jargon of the economics literature, it is said that each group exerts indirect, or cross-side, network effects on the other groups.
3. An intermediary can facilitate that coordination more efficiently than bilateral relationships between the members of the groups.

As I now show, CFPs meet these three conditions.

1. Distinct groups of customers

CFPs link at least two distinct groups: entrepreneurs (fundraisers) on one side and contributors (funders) on the other side. Some platforms have brought an additional side on board, namely sophisticated investors (such as venture capitalists, business angels, and institutional investors). For instance, two Belgian platforms have chosen this route: MyMicroInvest allows projects to be funded by the crowd together with a professional venture capitalist; Angel.me has established a partnership with the bank Belfius. The objective is clear: the participation of sophisticated investors is meant to reassure individual contributors; because these investors have much larger capacities and experience to investigate the reliability and success probability of proposed projects, crowdfunders can infer useful information from the choices that these investors make. Note that the opposite may be true as well: sophisticated investors may use the “wisdom of the crowd” as an indicator of the potential success of a new product (something that they may have a hard time to evaluate otherwise).

In the same vein, Indiegogo (a CFP popular with hardware projects) has added some celebrity investors (such as Virgin Group founder Sir Richard Branson, or Pay Pal Founder Max Levchin) to its $40 million round in new funds from investors.

2. Presence of externalities

Each group’s valuation of the platform depends on the participation of the other group(s).

As far as contributors are concerned, there are two reasons for which they are likely to prefer platforms with a larger number of entrepreneurs: such platforms provide them with a wider set of campaigns that they can choose to support and, in the reward-based model, such platforms also increase the probability that contributors will obtain rewards that fit their tastes. Yet, another force may play in the opposite direction: the chances that any given campaign will be successful (i.e., will reach the required threshold) are inversely related to the number of campaigns that the platform hosts; for that reason, contributors may prefer platforms with a smaller number of entrepreneurs. We may conjecture that the former effects outweigh the latter (in particular if contributors can find some way to coordinate on projects that are more likely to be successful). It is thus reasonable to say that entrepreneurs exert positive indirect network effects on contributors.

The same obviously applies in the opposite direction: contributors exert positive indirect network effects on entrepreneurs: entrepreneurs value platforms that are able to attract larger crowds of contributors as they increase their chances to raise the targeted funds; platforms that attract a larger number of contributors are also more interesting because they allow entrepreneurs to showcase their products and to “test the waters” on a larger scale.

It is important to note that agents on both sides also care about what the members of their own group do; that is, within-side external effects are also present. Such effects are likely to be negative among entrepreneurs as they compete for the funds that the crowdfunders are willing to contribute: the more campaigns the platform hosts, the tougher the competition. In contrast, positive within-group effects exist among contributors: the project that a particular contributor has chosen to support is more likely to reach the required threshold the larger is the number of contributors who may choose to back this project too.

All these effects are summarized in the next figure:

Externalities on a crowdfunding platform

3. High transaction costs

As for the third condition, even though entrepreneurs may be able to connect with the crowd by their own means (here is an example), CFPs undoubtedly offer them both higher prospects of success and lower costs. In particular, CFPs are able to mitigate the problems raised by information asymmetries much more efficiently than any individual fundraiser could do on his/her own (on this topic, see Agrawal et al., 2013).

In sum, it seems clear that CFPs belong to the broad class of multisided platforms. If you want to dig deeper, you may want to examine how  CFPs differ from well-known multisided platforms such as dating sites, real-estate platforms, or videogame consoles.

Source: staffersbookreview

For example, by early 2014, about 8,850 individuals pledged money online through the Belgium-based publishing house Sandawe; together they raised €850,000 to finance various projects of comic books. Sharing a similar business model, Akamusic allowed more than 80 artists to produce and distribute their album. While crowdfunding developed primarily in the arts and creativity-based industries, initiatives have been undertaken in other industries. For example, Angel.me, CroFun, Look&Fin, and MyMicroInvest are Belgian crowdfunding platforms that have experienced encouraging successes in raising funds for various entrepreneurial projects. Crowdfunding is naturally not confined within Belgian borders. Massolution reports that the market for crowdfunding has continuously grown worldwide since its infancy and should exceed $5 billion in 2013.

While crowdfunding is an umbrella term used to describe the request of funding from many individuals through an online platform, four types of crowdfunding models can be identified.

• First, crowdfunding can take the form of donations, where individuals give money to a given project and are not promised anything in return.
• Second, the reward-based model offers the contributors a non-financial benefit in return for their funding. In many cases, reward models offer the possibility to pre-order the product that the entrepreneur is making.
• Third, the lending-based model offers the possibility for entrepreneurs to act as borrowers, while contributors take the position of lenders.
• Finally, the profit-sharing model is a particular form of crowdfunding model in which contributors receive a share in the profits of the business or royalties of the artist. The latter model may also take the label of “equity crowdfunding”, meaning that it implies investments into securities: shares or bonds.

The startling rise of crowdfunding has raised awareness of and interest in its potential. It has also attracted the attention of scholars in finance, economics and management. Most of the studies on crowdfunding so far have an empirical nature (see, e.g., Agrawal et al., 2011, or Mollick, 2014); their goal is to better understand the motivations of funders and fundraisers, and to uncover the success factors of crowdfunding campaigns.

Although these empirical studies are very insightful, further research on crowdfunding needs to be informed by theoretical analyses, which have been scant up to now. Belleflamme, Lambert, and Schwienbacher (2014) make a first step in this direction. Our starting point is the contention that crowdfunding has implications that go beyond the financial sphere of the firm: it also affects the flow of information between entrepreneurs and contributors. In fact, raising money is not the only strong motivation for entrepreneurs. Other motivations for resorting to crowdfunding are seen as equally important; in particular, getting attention (reduced marketing costs) and obtaining feedback (market testing, market validation). Crowdfunding can be used as a promotion device, as a means to support mass customization or user-based innovation, or as a way for the producer to gain a better knowledge of the preferences of its consumers. Therefore, we argue that a deeper perspective on these other dimensions might help in our understanding of the dynamics of crowdfunding and enlighten the ongoing debate in many ways.

In the paper, we build a stylized model to understand what drives an entrepreneur to choose between the two main forms of crowdfunding, namely the reward-based and the profit-sharing models. To make the comparison as neat as possible, the two crowdfunding models only differ in two key aspects; all the other features of the modeling framework are common. In particular, it is assumed that the entrepreneur must raise a given amount of capital to launch her project; the cost of raising this capital is set, without loss of generality, to zero irrespective of the form of crowdfunding that is chosen. In other words, launching a reward-based or a profit-sharing crowdfunding campaign is supposed to be equally costly for the entrepreneur. It is also assumed that the entrepreneur faces the same crowd of investors/consumers in the two forms of crowdfunding; the crowd has no a priori preference for participating in one or the other type of campaign.

By “freezing” the cost and the participation dimensions, we clearly want to focus on another dimension of crowdfunding that we see as crucial, namely the relationship that crowdfunding allows the entrepreneur to establish with the crowd. The key argument developed in the paper is that this relationship differs across crowdfunding models. That is, when choosing one or the other form of crowdfunding, the entrepreneur also chooses what she can learn about the crowd and what she can extract from them through the pricing of her product.

Source: projecteve

Let us be more specific. The reward-based model of crowdfunding that we depict is based on pre-ordering: the contributors are consumers who have a strong taste for the announced product and who therefore decide to pre-order it, that is, to pay for it before it is actually produced. The entrepreneur can reward the contributors in various ways, as described above; what matters for the analysis is that these rewards (called “community benefits”) increase the contributors’ willingness to pay for the product. It is assumed that this increase in willingness to pay is proportional to the consumer’s taste for the product; that is, those consumers who like the product the most are also those who value the rewards the most. As a result, this form of crowdfunding allows the entrepreneur to segment her consumers into two groups: the early contributors who signal themselves as high-paying consumers (and whose willingness to pay is further enhanced by the value that they attach to the rewards), and the other, regular, consumers who wait for the product to be put on the market to consider buying it. The entrepreneur can thus price discriminate between these groups, which has the potential to raise her profits as she is assumed to be in a monopoly position for her product. However, the optimal price discrimination scheme may not be feasible if the initial capital requirement is too high. The obligation to finance the capital through pre-sales puts indeed a constraint on the price that can be charged to those consumers who choose to pre-order the product. One understands therefore that the profitability of this form of crowdfunding decreases with the size of the capital requirement.

Source: cadiaos

The profit-sharing model differs with the reward-based model on two accounts. First, the nature of contributions and compensations is different: instead of pre-ordering the product, the crowd is invited to directly provide a fixed sum of money to the entrepreneur and is promised a share of the future profits in exchange. Second, contributors also enjoy community benefits but it is assumed here that these benefits are independent of the contributor’s taste for the product; this assumption makes sense as contributors are seen here as investors, who may well decide to finance the venture without purchasing the product eventually. The implications of these differences are the following. On the minus side, the entrepreneur is no longer able to segment the crowd and, especially, to single out the high-paying consumers. On the plus side, all individuals value community benefits in the same way, which makes it easier for the entrepreneur to capture this extra value; moreover, this ability to capture the value that contributors attach to community benefits is not impaired by the size of the capital requirement.

The comparison of the profits that the entrepreneur can achieve under the two forms of crowdfunding yields the main result of the analysis: the entrepreneur prefers the reward-based model when the capital requirement is relatively small and the profit-based model otherwise. The intuition behind this result has been outlined above: pre-ordering in the reward-based model allows the entrepreneur to practice price discrimination, which should give her a higher profit than in the profit-sharing model (in which she is bound to set a uniform price for her product). However, price discrimination is constrained, and thus less profitable, when the initial capital requirement grows larger than some threshold. Above this threshold, the profit-sharing model, which allows the entrepreneur to turn all individuals into investors, becomes the best option.

Pour contourner l’obstacle juridique de Capital Records, ReDigi a annoncé début 2014 (communiqué de presse disponible ici) qu’elle avait désormais recours à une nouvelle technologie brevetée. Le brevet américain n° 8,627,500 B2 concerne une méthode de gestion et de revente de contenus numériques qui ne nécessite aucune copie sur la plateforme de revente. Cette technologie assure une “transaction atomique” selon les termes utilisés par ReDigi: il s’agit d’un mécanisme de transfert de fichier basé sur le cloud qui transfère automatiquement un bien “original” d’un propriétaire vers un nouveau propriétaire, sans faire de copie intermédiaire. Le système garantit aussi que la copie de départ, ainsi que les copies personnelles qui auraient été faites par le vendeur du fichier d’occasion, ont été retirées de son ordinateur. (Mais l’effectivité de cette technique reste à démontrer, notamment compte tenu des autres copies que le propriétaire originaire a pu faire sur d’autres machines). La technologie de ReDigi se distingue donc de celles dites de “copy and delete” qui font une copie tout en s’assurant que la copie originale est détruite. Ces dernières technologies déjà connues (et brevetées par Amazon ou Apple) ne permettraient pas de contourner l’écueil mis en évidence dans l’arrêt Capital Records v. ReDigi. Cette innovation technologique illustre bien le jeu permanent de cache-cache qui se joue entre technologie et droit.

La question demeure de savoir si la règle de l’épuisement du droit de distribution connue en droit européen est applicable dans l’univers du numérique. L’arrêt Oracle c. UsedSoft du 3 juillet 2012 de la Cour de justice de l’UE (C-128/11) qui porte sur l’épuisement du droit de distribuer des logiciels reste la référence en Europe.

Trois questions à examiner.

Faut-il considérer l’arrêt UsedSoft comme définissant une lex specialis applicable aux seuls logiciels ou, au contraire, considérer que la même règle de l’épuisement est applicable à d’autres fichiers numériques (par ex. des MP3 musicaux ou des ebooks)?

Ensuite, si l’on conclut que la jurisprudence UsedSoft est applicable aux seuls logiciels, cela vaut-il pour des jeux-vidéos ou des ‘apps’ distribués en ligne? La réponse oblige à s’interroger sur la notion de logiciel et à revenir sur un autre arrêt de la Cour de justice de l’UE, l’arrêt dit BSA ou BeSoft (22 déc. 2010, C-393/09).

Enfin, pensez-vous que la nouvelle technologie proposée par ReDigi permet de toute manière de considérer comme licite la revente en ligne de fichiers audio ou texte licitement acquis?

To paraphrase a famous Belgian surrealist artist: “This post is not a post“. More precisely, it is not a post yet, but it should become one once all your comments will be pieced together. My goal, in a very lazy educational way, is to build a case study of a specific multisided platform through crowdsourcing (which is, according to Wikipedia, “the practice of obtaining needed services, ideas, or content by soliciting contributions from a large group of people“).

Source: cooltownstudios.com

The platform that I would like you to study could be of some interest for you if you plan further studies. Its name is MYBS, which stands for Mind Your Own Business School. Its purpose is to help you “find your perfect business school among 1023 masters in 185 cities“.

Here is a list of questions that you can choose to address in your comment (depending on the available information).

• Why can MYBS be described as a multisided platform (for a definition, see here)?
• Which sides has MYBS brought on board?
• Are there other sides that MYBS could bring on board?
• If yes, what are the pros and cons of such strategy?
• What is the price structure chosen by MYBS?
• What are the main functionalities and features of the platform?
• How do they facilitate  the interaction among the members of the various sides?
• What are the governance rules (regulating access and interactions) put in place by MYBS?
• How do these rules affect the members of the various sides?
• In your view, did MYBS choose its functionalities and rules in an optimal way?
• Are there similar (online or offline) platforms competing with MYBS?
• Do these competitors share the same business model as MYBS (in terms of number and identity of sides, price structure, features and functionalities, governance rules)?
• What are the prospects for a platform such as MYBS?

As background readings, refer to the various posts on multisided platforms already published on this blog. Two other useful references are Hagiu (2014) and Eisenmann, Parker and Van Alstyne (2006).

Source: mjfellright.wordpress.com

A media bias is defined by Wikipedia as

the bias or perceived bias of journalists and news producers within the mass media in the selection of events and stories that are reported and how they are covered.

The first source of media bias that comes to mind is political. It is indeed often perceived in many countries that newspapers, magazines or TV channels occupy a clear position on the political spectrum. In French-speaking Belgium, for instance, it is commonly accepted that Le Soir is located more to the left and La Libre Belgique more to the right of the spectrum. Similarly, in the UK, The Guardian and The Times are respectively located at the Centre-Left and Centre-Right (for a classification of all UK newspapers, see here).

Such biases reflect the political opinions of either the owners, or the editors, or even the journalists of the media in question. I leave it to political science scholars to comment on the social impacts of such biases, as well as on the optimal diversity of opinions in the media (for an introduction, see e.g., this presentation of “Manufacturing Consent: The Political Economy of the Mass Media”, by Herman and Chomsky, 1988).

The purpose of this post is to shed some light on another potential source of media bias, namely profit. To understand how media biases can be profit-oriented, we refer to the theory of two-sided platforms, which we already presented a number of times on this blog (see, e.g., here and here).

The basic intuition is pretty clear: newspapers, magazines, radio stations, TV channels can be seen as two-sided platforms that link two groups of agents: on one side, we have the audience (readers, listeners or viewers) and on the other side, we have advertisers. As is common on many two-sided platforms, the price structure is heavily asymmetric, with one side contributing to the largest part, if not all, of the revenues. For media platforms, advertisers are commonly the ‘paying side’, while the audience is the ‘subsidy side’.

• What do advertisers pay for? They pay for having access to the attention of the audience. Naturally, their willingness to pay grows with the audience that they have access to. In the jargon of the economic literature, it is said that the audience exerts a positive indirect network effect on advertisers.
• What does the audience pay for? It pays for content. The question is then how the value of this content is affected by the presence of advertising. The answer to this question determines whether the advertising side exerts a positive or a negative indirect network effect on the audience. The effect is positive if, for instance, advertising contains useful information (think, e.g., of classified ads); conversely, the effect is negative if advertising is seen as a nuisance (e.g., because it spoils the reading or viewing experience). Note that the perception of such effects is likely to differ across individuals.

The sign and the magnitude of these indirect network effects are crucial to predict the importance of profit-oriented biases on media platforms. One can indeed conjecture that media biases are more likely to occur when the audience mainly sees advertising positively rather than negatively. In fact, when the audience welcomes advertising, there are positive indirect network effects on both sides. A positive feedback loop is thus in place: the larger the audience, the easier it is to attract advertisers and the more advertising the media contains, the more the media becomes attractive for the audience. In such a context, the owner of the media platform has higher incentives to favour content that pleases advertisers (or to avoid content that may displease advertisers) as this further fuels the positive feedback loop. The reverse applies when the audience mainly dislikes advertising: here, biasing the content towards the advertisers’ taste is less profitable as any increase in the amount of advertising would drive part of the audience away, thereby reducing the willingness to pay of the advertisers.

Two specific cases seem to confirm this intuition. The first case (which I already described on this blog) shows how costly it can be for a magazine to publish a piece of news that upsets one major advertiser. The second case (coming from a a recently published working paper) examines empirically how advertising by automobile manufacturers affects automobile reviews in a leading German car magazine.

A tales of Sheiks and cheques

Source: www.dailybastardette.com

The Bulletin is a magazine for expatriates moving to or living in Belgium. In its issue of July 10, 2008, the magazine picked up a story that had already been reported in the Belgian and international press. The article described a police raid at the fourth floor of the Conrad Brussels hotel, which had been rented by some members of the Nahyan royal family of the United Arab Emirates. These people were accused of exploiting and mistreating their servants.

The hotel management regarded the publication of these reports as “unethical” and decided to cancel its subscription to the magazine. Two other hotels from the same group soon followed suit.

At first glance, this looked like a minor event for the magazine. The three hotels together distributed about 700 copies of the magazine, which amounted to 5 percent of its circulation. Yet, the magazine’s editor in chief, Derek Blyth, declared to the New York Times: “Our financial stability is at stake with such a major response. We’re reeling from the impact.”

Hence, there seems to be a disproportion between the scale of readership loss and the economic consequences for the magazine. Yet, the apparent paradox quickly clears when one realizes that the rich patrons of these five-star hotels constitute the audience that advertisers value the most.

Biased car reviews

Dewenter and Heimeshoff (2014) examine the potential bias in car reviews of a leading German car magazine, Auto, Motor und Sport. More precisely, they investigate whether there is a link between car manufacturers’ advertising volumes in the magazine and the reported performance of the respective cars. Ample information is available to measure the characteristics of cars in a quite objective way (horse power, trunk capacity, mileage, emissions, etc.). Such objective measures can then be used to evaluate to which extent the test scores published in the magazine are based on such objective technical characteristics or on more subjective views “suggested” by advertising car manufacturers.

It is important to note that while an influence of advertising on test scores may exist (which is precisely what the authors try to uncover), the reverse influence may also exist: test scores may influence (future) advertising volumes (for instance, manufacturers may reduce their advertising expenditures after bad test scores have been reported). Neglecting this possibility may lead the authors to overestimate the impact of advertising volumes. To address this possibility of reverse causality, the authors use a number of appropriate econometric methods, which allow them to state with the following with some confidence:

Our main finding is a statistically significant influence of advertising on test scores, which provides evidence that a media bias caused by manufacturers’ advertising expenditures exists in car reviews.

What I would like you to do is to have a look at other economic studies of media bias and/or to articulate your own views about this issue. Here follows a list of recent papers on the topic (the dates generally correspond to the published version, while the links often point to previous, working paper, versions): George and Waldfogel (2003), Boykoff and Boykoff (2004), Mullainathan and Shleifer (2005), Gentzkow and Shapiro (2006), Reuter and Zitzewitz (2006), DellaVigna, S. and E. Kaplan (2007), Ellman and Germano (2009), Reuter (2009), Anderson and McLaren (2010), Gentzkow and Shapiro (2010), Gal-or et al. (2012).

The American company Uber has been all over the news in Belgium over the last three weeks. Uber connects passengers with drivers of vehicles for ride-sharing services; it appears therefore as a typical two-sided platform. As Evans (2011) explains it, a business opportunity emerges for a two-sided (or multi-sided) platform when three conditions are met:

1. There are distinct groups of customers.
2. A member of one group benefits from having his demand coordinated with one or more members of another group (i.e., there are indirect, or cross-side, network effects).
3. An intermediary can facilitate that coordination more efficiently than bilateral relationships between the members of the groups.

Uber meets the three conditions. First, the two groups are passengers and drivers. Second, indirect network effects are clearly present; as one can read on Uber website:

By seamlessly connecting riders to drivers through our apps, we make cities more accessible, opening up more possibilities for riders and more business for drivers.

Finally, drivers and passengers would have a hard time to find each other if they could not use the Uber app on their smartphone.

Uber made the headlines in Belgium recently because it first launched its service (UberPOP) in Brussels, then was requested to stop this service by the Brussels authorities, and finally counterattacked by modifying its offering and by making it freely accessible for one week. To justify its decision, the Brussels government invoked the fact that Uber service is illegal because it violates several regulations (the drivers do not pass any exam, they do not follow the tariffs and vehicles do not exhibit the required marks).

Brussels is by far not the only city in the world where Uber is in conflict with the regulators (Seattle just added its name to the list today); and the same goes for similar peer-to-peer transport platforms such as Lyft, Sidecar, or RelayRides.

One can easily understand that taxi drivers feel threatened by these new business models, which make it possible for you and me to compete with them. It is thus logical that they lobby their local authorities to have these services shut down. One can also understand that regulators take sides with taxi drivers, not only because a taxi strike is a nuisance that any reasonable city council is glad to avoid, but more importantly because these platforms are relatively new and it is therefore not clear whether they correctly protect the interests of all the parties involved (passengers and drivers).

In an excellent piece recently published in the Economix column of the New York Times, Arun Sundararajan explains that the current misalignment between newer peer-to-peer business models and older regulations is dangerous because it may impede economic growth.

This is unfortunate, because the emerging peer-to-peer, collaborative “sharing economy” will be a significant segment of the country’s future economic activity, stimulating new consumption, raising productivity and catalyzing individual innovation and entrepreneurship.

In the face of this “regulatory conundrum”, Arun Sundararajan recommends a combination of self-regulatory measures taken by the platforms themselves and some redesigned government oversight:

The solution is to delegate more regulatory responsibility to the marketplaces and platforms while preserving some government oversight, by creating new self-regulatory organizations like those that have succeeded in other markets and industries. (…) the government should recognize that the new peer-to-peer marketplaces have sophisticated controls naturally built in. (…) The platforms have voluntarily adopted additional nondigital safeguards. (…) Self-policing isn’t a universal panacea. We’ll still need government mandates to prevent effects like congestion, or for, say, providing accessible vehicles and ensuring disaster preparedness — things that markets don’t easily self-provide.

I fully subscribe to this view (and, apparently, so does the State of California as it is the first State that made peer-to-peer transport services legal under a dedicated regulatory framework). As noted above, Uber and the other peer-to-peer transport services are typical examples of two-sided platforms. I have already explained in a previous post that

On such platforms, intermediaries have to design various strategies to induce agents on both sides to participate. This might be tricky because of the “chicken-and-egg” problem that pesters all these platforms: to attract one group, you need to attract the other one, but were should you start?

A first role of these platforms as intermediaries is thus to act as platform operators by providing a platform where passengers and drivers are able to interact. Yet, a precondition for having both sides on board is that they can trust each other, which is far from obvious in the presence of asymmetric information. Hence, the intermediaries must also play the role of trusted third-parties; that is, Uber, Lyft, Sidecar and the likes must act as certification agents, mainly by revealing information about the drivers’ reliability or quality. They do so through reputation systems and active supplier screening; another cooperative initiative in this direction is the Peer-to-Peer Rideshare Insurance Coalition, which aims “to build a foundation of insurance best practices, policies and information for P2P Ridesharing.”

Source: creatinemarketing.com

If they want to be considered as trusted intermediaries, platforms have to become bearers of reputation and effectively certify the quality and reliability of the drivers that they take on board. It is indeed in the platforms’ best interest to screen drivers carefully so as to keep only the high-quality ones. Why? Because a driver selected by the platform is believed to be of high quality by a passenger unless she previously experienced low quality of some other driver contacted through the platform. Hence, to avoid any stain on its reputation, the platform will directly discontinue the operation of low quality drivers. Understanding that, drivers do not find it profitable to provide a low quality service, implying that only high quality services are eventually provided on the platform.

In a nutshell, the platform can be trusted simply because it suffices to have one rotten apple in the bag to spoil the rest of them in no time, something that a two-sided platform simply cannot afford.

As many Internet-based platforms share this problem of establishing trust, I would like you to find and discuss some specific mechanisms that they put in place in order to achieve this goal.

Comparison shopping sites, also known as shopping robots or shopbots, have been around for about two decades. Sites such as Shopping.com, Shopper.com, PriceGrabber, Shopzilla, Vergelijk or Kelkoo help us find goods or services that are sold online by providing us with loads of information (products sold, price charged, quality, delivery and payment methods, etc.). As they present the information in an accessible way and display links to the vendors’ websites, shopbots significantly reduce our costs of searching for the best deal.

The most common business model for shopbots is to charge sellers for displaying their information while letting users access the site for free. Fees can be computed in different ways, as explained by Moraga and Wildenbeest (2011, p. 4):

Initially, most comparison sites charged firms a flat fee for the right to be listed. More recently, this fee usually takes the form of a cost-per-click and is paid every time a consumer is referred to the seller’s website from the comparison site. Most traditional shopbots, like for instance PriceGrabber.com, and Shopping.com operate in this way. Fees typically depend on product category—current rates at PriceGrabber range from $0.25 per click for clothing to $1.05 per click for plasma televisions. Alternatively, the fee can be based on the execution of a transaction. This is the case of Pricefight.com, which operates according to a cost-per-acquisition model. This model implies that sellers only pay a fee if a consumer buys the product. Other fees may exist for additional services. For example, sellers are often given the possibility to obtain priority positioning in the list after paying an extra fee.

How can such a business model be economically viable? To answer this question, we need to understand how shopbots create value for both retailers and consumers, so as to outperform their outside option, i.e., the possibility for them to find each other and conduct transactions outside the platform?

A quick journey through a number of landmark contributions to the theory of imperfect competition will help us understand the importance of price transparency and search costs. To use a simple setting, think of a number of firms offering exactly the same product, which they produce at exactly the same constant unit cost. They face a large number of consumers. If firms compete by setting the price of their product, Joseph Bertrand has shown in 1883 that the only reasonable prediction of this competition is that firms will set a price equal to the unit cost of production. This result is sometimes called the ‘Bertrand Paradox’ as the competitive price is reached although there may be no more than two firms in the industry.

One important assumption behind this result is that there is full transparency of prices: all consumers are able to observe the prices of all firms without incurring any cost. As the firms offer products that are exactly the same, consumers only care about the price and (absent capacity constraint), they all buy from the cheapest seller, which generates this cutthroat competition.

What happens if it is assumed instead that consumers face a positive search cost if they want to observe and compare prices? Peter Diamond (Nobel Prize in economics, 2010) show in his 1971 paper that the exact opposite result obtains: all firms will price at the monopoly level and no consumer will search. This result, known as the ‘Diamond Paradox’, holds even if consumers have infinitesimal search costs. Belleflamme and Peitz (2010, p. 164) explain the intuition:

In this equilibrium, consumers expect firms to set the monopoly price. A firm which deviates by setting a lower price certainly makes those consumers happier that learnt about it in the first place, but since the other consumers do not learn about it, this will not attract additional consumers. Given their beliefs, consumers have an incentive to abstain from costly search, so that a deviation by a firm is not rewarded by consumers.

The next question that naturally arises is what happens between the previous two extremes. What if consumers have different search costs. In their “bargains and ripoffs” paper of 1977, Steven Salop and Joseph Stiglitz (Nobel Prize in economics, 2001) suppose that there are two kinds of consumers: the “informed” consumers can observe all prices for free, whereas the “uninformed” consumers know nothing about the distribution of prices. Under this assumption, they show that spatial price dispersion can prevail at equilibrium: some stores sell at the competitive price (and attract informed consumers) while other stores sell at a higher price (selling only to uninformed consumers).

In his model of sales of 1980, Hal Varian (now chief economist at Google) establishes the possibility of temporal price dispersion. In his model, the equilibrium conduct for firms is to randomize over prices (to put it roughly, it is as if they were rolling a dice to determine which price to set). As a consequence, at any given period of time, firms set different prices for the same product; also, any given firm changes its prices from one period to the next. This is why price dispersion is said to be temporal.

Let us now terminate our journey by introducing shopbots into the picture. In the previous models, firms didn’t have to incur any cost to convey price information to consumers. It was consumers who had to search for the information, with some consumers incurring a larger search cost than others for some unknown reason. By adding a new player to the model, namely a shopbot, Michael Baye and John Morgan propose, in their 2001 paper, a more realistic model where the above assumptions are relaxed. In their model, a profit-maximizing intermediary runs a shopbot that mediates the information acquisition and diffusion process. This intermediary can charge both sides of the market for its services; that is, firms may have to pay the intermediary to advertise their price and consumers may have to pay to gain access to the list of prices posted on the shopbot. After observing the fees set by the intermediary, sellers decide whether or not to post their price on the shopbot and if so, which price, while consumers decide whether or not to visit the shopbot and learn the prices (if any) that are posted there.

Baye and Morgan show that price dispersion persists in this environment. This is because the intermediary optimally chooses to make sellers pay for advertising their price on the shopbot, while letting all consumers access the shopbot for free. This means that all consumers are ‘fully informed’ in the sense that they buy from the cheapest firm on the shopbot. Despite this fact, firms earn positive profits at equilibrium (this is due to the fact that they post randomized prices on the shopbot, as was the case in Varian’s model of sales).

The predictions of this model square quite well with the business model that most shopbots have adopted and with the common observation that prices listed on shopbots are dispersed (even though the advertized products are very similar). So, the quick journey that we have made allows us, I believe, to understand better how shopbots can enter the market and survive in the long run.

Important remaining questions are whether shopbots increase the competitiveness of product markets and enhance market efficiency. This is what I ask you to investigate.