Daily Archives: June 20, 2019

Why economics must go digital

By Diane Coyle – One of the biggest concerns about today’s tech giants is their market power. At least outside China, Google, Facebook, and Amazon dominate online search, social media, and online retail, respectively. And yet economists have largely failed to address these concerns in a coherent way. To help governments and regulators as they struggle to address this market concentration, we must make economics itself more relevant to the digital age.

Digital markets often become highly concentrated, with one dominant firm, because larger players enjoy significant returns to scale. For example, digital platforms incur large upfront development costs but benefit from low marginal costs once the software is written. They gain from network effects, whereby the more users a platform has, the more all users benefit. And data generation plays a self-reinforcing role: more data improves the service, which brings in more users, which generates more data.

To put it bluntly, a digital platform is either large or dead.

As several recent reports (including one to which I contributed) have pointed out, the digital economy poses a problem for competition policy.

Competition is vital for boosting productivity and long-term growth because it drives out inefficient producers and stimulates innovation. Yet how can this happen when there are such dominant players?

Today’s digital behemoths provide services that people want: one recent study estimated that consumers value online search alone at a level equivalent to about half of US median income.

Economists, therefore, need to update their toolkit. Rather than assessing likely short-term trends in specific digital markets, they need to be able to estimate the potential long-term costs implied by the inability of a new rival with better technology or service to unseat the incumbent platform.

This is no easy task because there is no standard methodology for estimating uncertain, non-linear futures. Economists even disagree on how to measure static consumer valuations of free digital goods such as online search and social media.

And although the idea that competition operates dynamically through firms entering and exiting the market dates back at least to Joseph Schumpeter, the standard approach is still to look at competition among similar companies producing similar goods at a point in time. more>

Updates from ITU

Iceland’s data centers are booming—here’s why that’s a problem
By Tryggvi Adalbjornsson – The southwestern tip of Iceland is a barren volcanic peninsula called Reykjanesskagi. It’s home to the twin towns of Keflavik and Njardvik, around 19,000 people, and the country’s main airport.

On the edge of the settlement is a complex of metal-clad buildings belonging to the IT company Advania, each structure roughly the size of an Olympic-size swimming pool. Less than three years ago there were three of them. By April 2018, there were eight. Today there are 10, and the foundations have been laid for an 11th.

This is part of a boom fostered partly by something that Icelanders don’t usually rave about: the weather.

Life on the North Atlantic island tends to be chilly, foggy, and windy, though hard frosts are not common. The annual average temperature in the capital, Reykjavík, is around 41 °F (5 °C), and even when the summer warmth kicks in, the mercury rarely rises above 68. Iceland has realized that even though this climate may not be great for sunning yourself on the beach, it is very favorable to one particular industry: data.

Each one of those Advania buildings in Reykjanesskagi is a large data center, home to thousands of computers. They are constantly crunching away, processing instructions, transmitting data, and mining Bitcoin. Data centers like these generate large amounts of heat and need round-the-clock cooling, which would usually require considerable energy. In Iceland, however, data centers don’t need to constantly run high-powered cooling systems for heat moderation: instead, they can just let in the brisk subarctic air.

Natural cooling like this lowers ongoing costs. more>

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Updates from Siemens

Why the aerospace industry must adopt condition-based maintenance
By Dave Chan and John Cunneen – When the aerospace industry adopts condition-based maintenance and predictive maintenance methods, the cost of owning and operating aircraft is minimized, downtime is reduced and airworthiness is easier to prove.

Unfortunately, many companies seem to simply go through the motions and use antiquated and increasingly unreliable methods to track reliability and, as a result, spend more downtime than needed conducting unnecessary maintenance. This not only increases costs but, more importantly, can put the safety of the aircraft at risk.

In our previous blogs, we discussed the cost of certification and the increasing burdens placed on aircraft companies to prove, through certification documentation, that their aircraft meet the government safety standards established in countries and regions worldwide. We also discussed some of the digital tools available to help manage this process, lower costs, decrease time-to-market and increase availability/readiness.

Digitalization can ease the burden of designing and manufacturing an aircraft, but it’s also a pivotal strategy to implement these digital tools to increase the efficiency of maintaining, repairing and operating the aircraft.

Major industries such as maritime and oil and gas are using condition-based maintenance to lower costs and reduce downtime. With the maritime industry, just like the aerospace industry, reliability, availability, maintainability, and safety (RAMS) are key in keeping a maritime fleet operational. more>

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Transatlantic Relations: Difficult Decisions Ahead

By Gordon D. Sondland – The EU often espouses the rhetoric of supporting free trade, while simultaneously employing numerous non-tariff barriers to its markets. While these NTBs take many forms, prominent among them are the EU’s unjustified and trade restrictive policies with respect to agricultural and food products, notably unwarranted bans not based on science or actual risk.

It is not a coincidence that the United States has an agricultural trade surplus with the world of $22 billion and a deficit with the EU of $15 billion. The EU’s tariffs are also higher than the United States.

Historically, the United States has been there for Europe for more than seven decades. Our commitment to a free, prosperous and secure Europe has come in many forms, from American dollars to American lives. The United States decided to make a strategic, long-term investment in this transatlantic relationship.

Hundreds of billions of dollars have flowed into Europe, along with the incalculable investment into Europe’s security via non-obligatory defense spending. At the same time, we have opened our lucrative markets and welcomed European trade and investment throughout our economy.

Against this backdrop, I arrived in Brussels last July highly optimistic.

Fast-forward six months. I am deeply disappointed we have not seen faster, deeper progress on the wide number of areas where European rules prevent U.S. firms from fair access to European markets. This lack of demonstrable progress on real and tangible U.S. concerns presents a serious challenge to the transatlantic relationship at a time when it is more important than ever that we be working together.

Rest assured, President Trump is committed to fixing the imbalance in our trade relationship so it will not burden yet another American administration. more>