Computer Mediated Transactions

Hal R Varian
American Economic Review

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excerpt Sharing revenue at point of sale requires that both parties be able to monitor the transaction. The technological innovations of bar code scanning, the computerized cash register, and dial-up computer networks were the technologies that enabled revenue sharing arrangements 3 on 6/7/2019, 2:04:25 PM

tag-as Algorithmic game theory on 6/7/2019, 2:05:02 PM

excerpt Though I have emphasized computer mediated transactions, the definition of computer can be considered to be quite broad. The earliest example I have been able to find for an accounting technology that enabled new forms of contract involves Mediterranean shipping circa 3300 BC. The challenge was how to write a “bill of lading” for long distance trade in societies that were pre-literate and pre-numerate. The brilliant solution was to introduce small clay tokens, known as “bullae,” which were small representations of the material being transported. As each barrel of olive oil was loaded onto a ship, a barrel-shaped token was placed in clay envelope. After the loading was completed, the envelope was baked in a kiln and given to the ship’s captain. At the other end of the voyage, the envelope was broken open and the tokens were compared to the barrels of oil on the ship as they were unloaded. If the numbers matched, the contract was verified. Later marks were scratched on the outside of the bullae that indicated the number of tokens inside, and some authors believe that this innovation led to the invention of writing between 3400 and 3300 BC. (Glassner, Bahrani and de Miero 2005). on 6/7/2019, 2:05:25 PM

excerpt A somewhat more recent example is the invention of the cash register in 1883 by James Ritty. Ritty was a saloon owner who discovered that his employees were stealing money. He hit upon the idea of building a device which would record each transaction on a paper tape, an invention that he patented under the name of “the incorruptible cashier” (Patent 271,368). Ritty’s machine formed the basis for the National Cash Register company, founded in 1884. The NCR device added a cash drawer and a bell that sounded “ka-ching” whenever the drawer was opened, which alerted the owner to the transaction, thereby discouraging pilfering. It is thought that this improved monitoring technology made retailers willing to hire employees outside the immediate family, leading to larger and more efficient establishments. See Yates (2000) for a more detailed account of the role of office machinery in the development of commercial enterprises. 4 on 6/7/2019, 2:06:09 PM

excerpt Online advertising serves as a poster child for algorithmic mechanism design. A Pasadena company called GoTo came up with the idea of ranking search results using an auction. Users did not find this particular form of search attractive, so GoTo switched to using their auction to rank advertisements. In the original auction, ads were ranked by “bid per click” and advertisers paid the amount they bid. After consultation with auction theorists, GoTo moved to second-price auction: an advertiser paid a price per click determined by the bid of the advertiser in the next lower position. See Battelle (2005) and Levy (2009) for accounts of the development of these auctions. 4 on 6/7/2019, 2:06:34 PM

excerpt There is a fundamental divergence of incentives in advertising. The publisher (the content provider) has space on its the Web page for an ad and it wants to sell these ad impressions to the highest bidders. The advertiser doesn’t care directly about ad impressions but does care about visitors to its Web site, and ultimately about sales of its products. So the publisher wants to sell impressions, but the advertiser wants to buy clicks. 4 on 6/7/2019, 2:06:52 PM

excerpt In the context of online advertising the exchange rate is the predicted clickthrough rate, an estimate of how many clicks a particular ad impression will receive. This allows one to convert the advertiser’s offered bid per click to an equivalent bid per impression, allowing the publisher to sell each impression to the highest bidder. 4 on 6/7/2019, 2:07:44 PM

excerpt Instead of a “one size fits all” model, the Web offers a “market of one.” 6 on 6/7/2019, 2:08:29 PM

excerpt The hallmarks of modern manufacturing are routinization, modularization, standardization, continuous production, and miniaturization. These practices have had a dramatic impact on manufacturing productivity in the twentieth century. The same practices can be applied to knowledge work in the twenty-first century. 8 on 6/7/2019, 2:09:30 PM

cites The Demand for Monitoring Technologies: The Case of Trucking on 6/7/2019, 2:11:10 PM

cites A History of Mechanical Inventions on 6/7/2019, 2:18:54 PM

authored-by Hal Varian on 6/7/2019, 2:19:30 PM