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Michael Latzer

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Edited by Johannes M. Bauer and Michael Latzer

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Johannes M. Bauer and Michael Latzer

In the Internet economy many of the theoretical assumptions and historical observations upon which economics rests need to be reexamined. Economics built a very successful research program by focusing on the choices and behavior of rational individual decision-makers under conditions of scarcity. In this highly stylized framework, eventually increasing incremental costs, decreasing marginal utility and resource constraints result in negative feedback that moves economic processes toward equilibrium states. The rigorous analysis of these equilibria at the micro and macro level was a major achievement of economics. In an economy built around digital technology some of these conditions change fundamentally. Scale economies, interdependencies, and abundance are pervasive and call for analytical concepts that augment the traditional approaches.

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Edited by Johannes M. Bauer and Michael Latzer

As the single most important general purpose technology of recent times, the Internet is transforming the organization, competitive structure and business models of the private, the public and non-profit sectors. In 27 original chapters, leading authors discuss theoretical and applied frameworks for the study of the economics of the Internet and its unique economics as a global information and communications infrastructure. They also examine the effects of the Internet on economic transactions (including social production, advertising, innovation, and intellectual property rights), the economics and management of Internet-based industries (including search, news, entertainment, culture, and virtual worlds), and the effects of the Internet on the economy at large.
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Michael Latzer, Katharina Hollnbuchner, Natascha Just and Florian Saurwein

Algorithms have come to shape our daily lives and realities. They change the perception of the world, affect our behavior by influencing our choices, and are an important source of social order. Algorithms on the Internet have significant economic implications in newly emerging markets and for existing markets in various sectors. A wide range of our daily activities in general and our media consumption in particular are increasingly shaped by algorithms operating behind the scenes. This chapter offers a typology of applications based on algorithmic selection and provides a basic input-throughput-output model in order to show the functioning and economic purposes of the different types of algorithmic selection. It explains theoretical perspectives applied for its analysis and presents results from market analyses. Different phases of the markets for applications using algorithmic selection are shown, their structures and concentration tendencies explored. After a discussion of business models of algorithmic selection with an emphasis on value proposition, value creation and revenue stream the chapter examines selected implications of algorithmic selection for traditional media markets and the incumbents’ profitability. An identification of risks, such as possible violations of basic rights, is complemented by a discussion of regulatory challenges and available governance options.