Economics of comunication
COM – Degree in Corporate Communication
60 hours 9 credits
Professor:
Marco Gambaro
office: room 24, 2° floor, via conservatorio 7
marco.gambaro@unimi.it
office hours: Thursday from 10,30 to 13,30
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abstract
• This course is a survey of economic issues in
communication and cultural industries.
• It examines some of the special aspects of these
businesses that complicate the market processes,
such as the particular nature of demand for
experience goods, pricing strategy, scale economies
and obstacles to market equilibrium that motivate
public policy
• The goal is to give economic instruments for the
analysis of the areas of communication and their
specific problems with regard to competition,
business strategies and public policies
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Course objectives
• We will survey several industries to provide an
overview of the markets for different kinds of
information goods.
• We will use the tools of microeconomics and of
industrial economics to provide insights about
features and processes that explain the specific
outcomes observed in the markets for experience
goods, cultural goods and information goods.
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Why economics of communication
and culture ?
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There Are Unique Aspects of the Market
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Creative talent in production – the creator has a personal interest in the product.
Pricing decisions – many opportunities for strategic pricing.
Zero marginal cost, production vs. replication/distribution.
Relationship between buyer and seller – artists and fans.
Market complementarities shape market structures – winner take all markets.
Demand aspects are unlike conventional commodity markets.
There Are Some Commonalities that Allow Conventional Economic
Analyses
– Production concepts – the nature of production and supply, technological
change.
– Market dynamics – market structure, market power, market outcomes.
– Demand concepts – elasticity, consumer surplus, pricing.
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Industries examinated will
include:
• Movie business: the project nature of production, vertical
integration, specific contingent contract
• Music and publishing with emphasis on intellectual property
• Television and radio and the fundamental differences between
public and private broadcasting market
• Art market
• Live performances
• Museum and cultural heritage
• Book publishing
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Some contents
Production and costs (fixed and
variable)
Demand and elasticity
Perfect competition and monopoly
Oligopoly
Vertical integration
Market definition and concentration
Windowing and price discrimination
Definition of media markets
Two sided market
Barriers to entry
Collusion and price war
Differentiation
Pricing
Advertising and
competition
Public policy and antitrust
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Some contents
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Costs desease
Team production
Subsidies in cultural sector
Merit goods
Principal agent model
Copyright and piracy
Transaction cost theory of the firm
Product novelty and perceived risk, nobody knows
Search and information costs: gate keepers and
critics, network effects, banwagon and snowball
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textbooks
• Ruth Towse, A textbook of cultural economics,
Cambridge University Press
• Lipczynski, Wilson, Goddard, Industrial organization:
competition, strategy, policy, Prentice Hall
• Evan, Schmalensee, The industrial organization of
market with two sided platform , downlodable papers
(ariel)
• Teaching notes downlodable (ariel)
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Course agenda
Week 1-6 lectures (with some cases, policy discussions
and guest lectures)
Week 7: midterm exam
Week 7-10 assisted group projectwork (market study,
industry analysis)
Week 10 Presentations
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Course requirements
If you attend lectures, course grade will be based on:
• Mid-term written exam (7-8 short answer) 50%
• Written assignement 25%
• Presentation 15%
• Cases and class exercise 10%
If you will not attend the lectures, grade will be based on
a written exam with a slightly larger text list
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Prerequisites
• Some basic economic ideas about supply and
demand; competition and monopoly
• Some knowledge of media organizations and
markets. Information products
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Some familiarity with graphs and curve
representations
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In order to remember
Some chapters of any basic book of economics
Lieberman-Hall, Economics: principles and applications
Slomann, Garrett, Essentials of economics
Frank, Microeconomics and behaviours
For media, culture and communication
Opening chapters of Towse’s book
Gillian Doyle, Understanding media economics, Sage
Alan Albarran, Media Economics: Understanding Markets,
Industries and Concepts
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Some starting points
• If firms have market power they can increase
prices
• How do they build market power and how do
they conserve it?
• Which are the consequences for different
agents and for the society as a whole?
• What can public policies and industrial
policies make about that?
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Long Run Trend:
Hours Worked US 1850-1956
Hours worked
stops falling; hours
spent on recreation
(not working) stops
rising.
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Economic fluctuations have
much greater impact on
manufacturing than on
services.
Recent trend in hours worked (weekly, average), 1965-2009
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Spending on recreation is
growing in absolute terms
Per capita, real spending on recreation
and recreation services.
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The long run trend in recreation expenditure
as a proportion of real income is growing
Recreation as a % of Disposable Income
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The form of recreation spending is changing
Service Component of Recreation Expenditures
Service = Movies, Sports, … (passive) 1959-2009
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Adding It Up
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Household income is not rising very much
Time spent working is steady or falling slightly
Time spent on recreation is no longer rising
Budget allocated to:
– entertainment, health care are rising
– food and clothing are falling
• Growing entertainment market is driven by
– budget reallocation
– changes in preferences.
– changing technologies and falling prices
• Demand in the recreational segment of the
economy is rising faster than overall output.
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Economic features of information goods
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Intangible
Non rival in consumption
Hardly excludable
Difficult define iownership
• MANY FEATURES LIKE PUBLIC GOODS
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Business models for information goods
Three main strategies
• Advertising
• Selling the product ( subscription)
• Public support
Mixed stategies are emerging in digital world
• Fremium
• Complementary products
• Flat rate (all you can eat)
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Costs of information goods
Costly to produce
Cheap to distribute
Usually high initial fixed cost
Unitary costs of reproduduction
are very low
Mainly sunk sunk
(price war and more risks)
Costant marginal cost
(small scale economies in industrial
segment)
Traditional equilibrium does not
always work
Raise the output will reduce
average costs
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