The “App Economy” versus Vested Interests

1. The “App Economy” versus Vested Interests Cameron M Weber, Ph.D. St. John’s University New York cameroneconomics.com

2. Marketing as Information in the App Economy • Marketing as information or persuasion? If persuasion then marketing creates waste through increasing preferences for consumption (Galbraith 1958, Van Tuinen 2011) If information then marketing reduces transaction costs and improves market efficiency (common result in the economics of industrial organization)

3. Marketing as Information in the App Economy • Marketing as information or persuasion? (cont.) Another view is that the economy is 60% “rhetoric” or persuasion. Deidre McCloskey 1985

4. The “App Economy”: Theory and Challenges II. Perfect Competition Model, Coase Critique and Theory of the Firm • Perfect competition model (see Supply and Demand graph in equilibrium) assumes perfect information and no transaction costs • Firms emerge to hire and fire labor “at will” in order to react to unknown and unknowable future market conditions; critique of perfect information and no transaction costs (Coase 1937) • The New, Gig, Free-Lance, Sharing, Internet, App Economy reduces information and transactions cost, a technology “shock”

5. Marketing as Information in the App Economy: Theory and Challenges II. Perfect Competition Model, Coase Critique and Theory of the Firm (cont.) D. Free-lance, gig, labor means a general demise of the firm? • “At-will” labor usually for two weeks, “gig” labor almost instantaneous • Reduction in labor transaction costs means improved factor mobility and more spontaneous entrepreneurial behaviour than firm contract employment • The Supply Curve “shifts-out” and standards of living increase

6. The “App Economy” versus Vested Interests III. Sharing economy releases assets for economic growth but faces opposition from vested interests • Decentralized new economy means less easily identifiable sources of political patronage, unionization and taxes • This means that vested interest oftentimes (but not always and everywhere) try to suppress new economy • “Creative destruction” through the market can make vested interests obsolete (price of NYC cab medallions dropped from around $1.3 million in 2014 to $400,000 today)

7. The “App Economy” versus Vested Interests Examples of App Economy v. Vested Interests AppVested Interests Opposed Uber, Lyft Taxi unions; city politicians, finance and regulatory authorities; public transportation unions Airbnb Hotel lobby associations; hotel worker labor unions; public housing and finance authorities Youtube Recording Industry Association of America; songwriter guilds; corporations with rent-seeking intellectual property rights protection Bitcoin and other Central banks, treasury departments, commercial banks crypto currencies

8. The “App Economy” versus Vested Interests III. Sharing economy releases assets and technology for improving standards of living but faces opposition from vested interests (cont.) Examples include: Paris taxi strikes and riots against Uber San Francisco fines against Airbnb(service vs. platform) New York law against medium term rental advertisements IRS declaration of Bitcoin as asset and summons to Coinbase for release of names of all Bitcoin users London’s plan to promote “black cab” taxi-drivers as public transportation with subsidies

9. The “App Economy” versus Vested Interests III. Sharing economy releases assets and technology for improving standards of living but faces opposition from vested interests (cont.) Vested interests seek state protection from “destructive” competition, resulting in cartels and oligopolies Nutter and Einhorn 1969 shows all those with monopoly power in the long-run are those granted protection from competition by the state.

10. The “App Economy” versus Vested Interests IV. Factors of Production and Technological Change Factors of production are land, labor, capital and entrepreneurial talent Under new economy, entrepreneurial talent becomes paramount Entrepreneurial talent can explain economic growth unlike the perfect competition equilibrium model

11. The “App Economy” versus Vested Interests Summary: We may be in a new economy where entrepreneurship as applied to reducing transaction / information costs in new technological platforms can bring increasingly greater standards of living New higher standards of living through the decentralized sharing economy can only be realized through competition, competition which can be thwarted by vested interests.

12. The “App Economy” versus Vested Interests https://www.youtube.com/watch?v=-n186IbkZpM

13. The “App Economy” versus Vested Interests Bibliography Ronald Coase 1937 “Nature of the Firm,” Economica John Kenneth Galbraith 1958 The Affluent Society, Boston: Houghton Mifflin Deirdre McCloskey 1985 The Rhetoric of Economics, Madison: University of Wisconsin G. Warren Nutter and Henry A. Einhorn 1969 Enterprise Monopoly in the United States: 1899-1958, NY: Columbia University Press. HenkK. Van Tuinen 2011 “The Ignored Manipulation of the Market: Commercial Advertising  and Consumerism Require New Economic Theories and Policies,” Review of Political Economy

14. Marketing as Information in the App Economy: Theory and Challenges Bibliography (cont.) Economist 2016 “The World this Week: Hailing a Taxi,” Sept. 17. James Barron 2016 “Owner of Brooklyn Brownstone Sees Herself Caught in Airbnb Crossfire,” New York Times, Nov. 26. Jim Harper 2016 “The IRS Just Declared War on Bitcoin Privacy,” Foundation for Economic Education, Nov. 21, https://fee.org/articles/the-irs-just-declared-war-on-bitcoin-privacy/ Mark Scott 2016 “Is Uber a Car Service or a Digital Platform?,” New York Times, Nov. 20. Ben Sisario 2017 “Streaming Drives Up Music Sales in U.S., but Hold the Celebrations,” New York Times, March 31. Youtubepost: “French taxi strike protesters smash up Courtney Love's cab and take her driver hostage,” https://www.youtube.com/watch?v=WfJQmuYIFCg Youtube.com: “Raging taxi drivers clog Philadelphia in anti-Uber protest,” https://www.youtube.com/watch?v=HJvXjdDDPYM Youtube.com: “Airbnb Sues San Francisco Over Host Requirements | Tech Bet | CNBC,” https://www.youtube.com/watch?v=EJfEaL0fA6Q http://www.businessinsider.com/nyc-yellow-cab-medallion-prices-falling-further-2016-10