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  5. Big Data: Competition, Innovation, and Policy
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Big Data: Competition, Innovation, and Policy

Paper Session

Sunday, Jan. 3, 2021 10:00 AM - 12:00 PM (EST)

Hosted By: Society of Government Economists
  • Chair: Daniel Ker, Organisation for Economic Co-operation and Development

Online Platforms’ Creative “Disruption” in Organizational Capital – the Accumulated Information of the Firm

Wendy C.Y. Li
,
U.S. Bureau of Economic Analysis

Abstract

Online platforms based on troves of data and AI have revolutionized and disrupted the industry sectors they entered. Traditional economic approaches have not timely detected the process of creative disruption by online platforms, most of which were founded only in the past decade and therefore their impacts may not have propagated to firm entries or exits. It is imperative to find an alternative approach to quickly identify the impacts of online platforms on competition, innovation, and welfare. This paper presents a new method to examine how the entry of an online platform, a new data-driven business innovation, affects an existing firm’s value of and investment in organizational capital. An online platform’s key disruption in its sector is traditional firms’ knowledge derived from their relatively limited amounts of data. This disruption can hence be measured by a firm’s organizational capital, the accumulated information of the firm. The approach is supported by our finding that the Big Tech’s organization capital is highly correlated with the rising global data flow, the first empirical evidence that successfully links the explosive global data flow to an economic value. Moreover, we also find that when the global data volume increases by five folds, the Big Tech’s organizational capital stock doubles. The major findings based on the firm-level data of the U.S. hospitality and the transportation industries during the period of 2002 to 2018 are as follows. When an online platform enters the industry, the existing incumbents with a lower degree of digital transformation have a higher depreciation rate of organizational capital. This is the first empirical evidence of the anticipated effect of new business innovations on the depreciation rate of organizational capital. However, there is no immediate impact on the output, the employment, or the total factor productivity of existing incumbents.

The Data Economy: Market Size and Global Trade

Diane Coyle
,
University of Cambridge
Wendy C.Y. Li
,
U.S. Bureau of Economic Analysis

Abstract

Data is a key digital economy input and its use is growing rapidly. Large online platforms using data at massive scale operate globally. The data gap between them and the incumbents they disrupt, a barrier to entry in the markets they dominate, affects not only firms but also aggregate innovation, investment and trade. Valuing data is problematic, yet this information is crucial for informed policy decisions on infrastructure and human capital as well as business investment decisions. In this paper we demonstrate a novel sectoral methodology for estimating the economic value of markets for data. Our conservative estimate of the market size for data in the global hospitality industry was US $43.2 billion in 2018, and it has been doubling its size every three years. Our method can provide industry-level and country-level information on data markets. The scale of data flows affects the international division of labor in the digital economy, with important policy implications. With many jurisdictions introducing different data protection and trade regimes, affecting the data gap and data access by market participants, we present a trade typology of countries and discuss their ability to benefit from data value creation.

Characteristics of Firms Transmitting Data across Borders: Evidence from Japanese Firm-level Data

Eiichi Tomiura
,
Hitotsubashi University
Banri Ito
,
Aoyama Gakui University
Byeongwoo Kang
,
Hitotsubashi University

Abstract

Cross-border data flows are increasingly critical for our economies in the digital age, but only a limited fraction of firms regularly transfer data across national borders or collect data from overseas. Based on our unique survey on cross-border data transfers linked with firm-level data derived from official statistics in Japan, we find that high-productivity firms tend not only to be active in global activities, such as exporting and foreign direct investment, but also to intensively transmit data across borders. Globalized and productive firms are also more likely to introduce 3D printers.

China's Digital Payments Revolution

Aaron Klein
,
Brookings Institution

Abstract

While America led the global revolution in payments half a century ago with magnetic striped credit and debit cards, China is leading the new revolution in digital payments. In the past decade, China has leapfrogged magnetic cards, moving to a system based on smartphones and QR codes. But the changes from this system go far beyond just a new technological form. The Chinese payment system has done something far more revolutionary: It has largely disintermediated the banking system. In America, and most developed economies globally, the payment and banking systems have been intertwined for centuries. The connection between the two is clear: Who is better equipped to intermediate payments between parties than the financial institutions that hold those parties’ funds? Yet new financial technology and its application in China have created a viable alternative payments model where banks play a far less central role, and in the extreme, possibly none. This new payment form requires greater analysis to appreciate the benefits, costs, and implications from a new model. Understanding this model will help answer key questions and inform policy decisions. Will the American-led invention of magnetic stripes and card readers be globally replaced by digital wallets using QR codes to transfer funds external to the banking system? Will banks continue to play the central role in operating payment systems or will new tech disintermediate banks? If disintermediation occurs, what are the ramifications of combining payments with commerce instead of banking? This paper explores the answers for the above questions and provides important policy implications.
Discussant(s)
Marshall Reinsdorf
,
International Monetary Fund
Steven Weber
,
University of California-Berkeley
Nadim Ahmad
,
Organisation for Economic Co-operation and Development
Martin Chorzempa
,
Peterson Institute for International Economics
JEL Classifications
  • O3 - Innovation; Research and Development; Technological Change; Intellectual Property Rights