A conversation with Tommaso Valletti
The focus of the meeting was linked with Mr. Tommaso Valletti’s reflections on in the last few years as an economist: he studied the last developments in the world about economics, policies and technology. The importance of data and his research to gain and study some of them, the challenges of new digital giants and the consumer side, they are all challenges that have been explored by a wonderful guest.
He is Professor of Economics at Imperial College London and a also at the University of Rome Tor Vergata. He has obtained a degree in engineering and holds a MSc and a PhD in economics from the London School of Economics. He is currently the Head of the Department of Economics & Public Policy at Imperial College Business School.
His personal journey through a varied process starting from his PhD in 1999 he finished it. In that year an interesting book was published “Information rules: a strategic guide to the Network Economy” by C. Shapiro and Hal R. Varian.
A digital market was emerging and the authors were commenting a list of attitudes that would have changed the market and the economic reality.
Thanks to that book he understood that wanted to follow in the academic career and be part of the academic understanding of this new process.
Firstly, he started studying markets and their failures from an analytical point of view, the majority of the notions were theoretical notions. They gave him a framework, some guidelines and they were so useful for his career. Then he tried to get some data, he mostly used “Proxy”, a server application to seek resources from servers that provide those resources ;taking into consideration that internet was evolving through broad band communication.
The focus was on how people used internet, how do they evaluation the speed of internet, the quality of connection or if they used it to work and study. This new way of looking for things on the web was affecting people’s life also from a political point of view and their vote to the political elections.
The external factors of the weather influenced the quality of connection and as a consequence the political elections in that period.
He noticed that internet was also a part of entertainment for the population, losing contact with external environment. They don’t go out to vote if there is a good connection, it is a research driven by social demographic factors.
Internet has had also an impact on media, not anymore newspapers, and advertisement. Moreover, Valletti’s studies went beyond the surface of the situation in order to analyze the impact on people’ choices.
The situation described in the book written by Shapiro and Varian, was taking place in the society.
Another experience was a “trip” to Brussels to the European commission as new chief economist.
Why competition matters?
If markets are more concentrated, goods and services that you will buy will be more expensive; this is the case of oligopolies (5-10%) and on the other hand, healthy competition would save directly 300 euros per month per household.
Italy is saving 90 billions of euros per year for families.
Competition, being good for consumers and not for firms, forces firms to invest. Thanks to this increase in investments there would be an increase in GDP (for Italy is about 150 billions euros per year).
Competition here need to be intended not only for products but also for inputs: restoring wages to the true productivity of the labor force; a new income redistribution.
Coming back to the technology factor, there are different cases related to “Digital giants”: Apple tax, Google shopping, Google Android, Amazon Marketplace etc…
They have all exceeded the benchmark of market capitalization of an unimaginable number; except for Facebook. They are huge companies , with a very big political and economic power.
They have particular business models, for example Google and Facebook share the payment ads, Amazon has created a marketplace where people can buy whatever they want or Apple that is selling stuff in a more traditional way.
The last big antitrust case in the USA was 20 years ago and it concerned Microsoft’s policies, they withdrew regulation from very long time and Europe has a more interventionist approach than the American one.
In this particular case, what happened in reality?
Mr. Valletti elaborated on this question declaring that, as Mark Zuckerberg said “Move fast and break rules”, in a very dynamic digital world it’s easy to break the rules: taxes, privacy and competition. Excellent and smart companies that navigate and live in a “grey” area were innovation is in a continuum process but regulators are struggling to run after them.
Are consumers worse off?
On the other side of the coin, it is important to see the situation of consumers, people that move on markets and the economy of every global society. In these days, inertia in choosing a product or the website to obtain a certain information, it is a popular element that characterize our society and the way in which people live.
Privacy of people has been challenged in the last years and Google control and guide their access to richer owners of websites that pay more: some shopping platforms can offer a better pair of shoes with a low price standard but the attention of the customer is re-allocated to another source of information that is in the most visible display position for our eyes.
All in all, the situation described in the book “Information rules: a strategic guide to the Network Economy”, is completely different in practical terms where behavioral bias are controlling the process and the 99% of people don’t have enough time to look for an information on different platforms or to click to “page 2” to see other links.
The original excitement about the presence of more democracy, dynamism and information thanks to the presence of internet has been faded thanks to the latest web developments and the bypass of the person himself.