Advancement of Cloud Computing Use and Its Impact on Macroeconomics in Japan – Its Monopolistic/Oligopolistic Market Characteristics and Social Welfare
34 Pages Posted: 2 Apr 2016 Last revised: 27 Sep 2016
Date Written: March 21, 2016
The cloud computing market is expected to rapidly expand and change the nature of ICT across all sectors; cloud computing transforms ICT from a tool dependent upon investment and physical ownership to one that can easily make use of outside resources. Cloud computing is expected to have a positive impact on industry as a whole as a General Purpose Technology (GPT). According to a published 5-year market forecast, the domestic cloud market in Japan is expected to grow at the annual compounded rate of 22%, while ICT investment is expected to remain at the same level.
On the other hand, cloud computing service is being provided not as a simple data storage service but as service models known as Saas/Paas/IaaS. Due to the nature of its network externality, a gradual shift seems to be taking place, whereby cloud computing service is provided by a limited number of big-name firms and the market tends to take on monopolistic/oligopolistic characteristics.
In this research, the impact of advancement of cloud computing use on Japanese macroeconomics is simulated and analyzed. Also, the effects of cloud computing markets’ monopolistic/oligopolistic characteristics on Japan’s macroeconomics and social welfare are estimated and explored.
For the purpose of this research, the cloud computing market is modeled utilizing DSGE (Dynamic Stochastic General Equilibrium) model-based simulation. DSGE is a sophisticated simulation tool employed to describe how macroeconomic variables, such as GDP and utility-based social welfare, collectively evolve over time by modeling the theory of microeconomics. There are also other reasons why DSGE is chosen for this research, including: (1) the majority of research employing DSGE is on monetary/fiscal policies, and the amount of research applying DSGE to ICT is relatively limited; and (2) the number of papers applying DSGE to social welfare is limited, even in the fields of monetary/fiscal policies.
The simulation parameters are calibrated for the case of Japan, based on (1) the latest national statistics on communications usage and economic business activity and (2) the results of the web-survey, conducted for this research, with over 1,500 valid responses from business people who have a company position to make ICT investment decisions.
For the sound development of the cloud computing market, there are several kinds of measures that industry and government can jointly take (in terms of guidelines and/or regulatory framework). For example, the advancements of data security and personal data protection may ease concerns of potential users. The advancement of data encryption technology may decrease the risks of unauthorized data access. The enhancement of cloud portability (cloud inter-operability) may ensure that market barriers to entry are not unduly high and allow users to more easily switch from one cloud service provider to another. These measures may encourage potential users to subscribe to cloud services. At the same time, since with these measures, cloud service providers can more easily sell their services, they are pro-competition as well. Some related results of above-mentioned web-survey are introduced and possible joint measures and roles of industry and government are discussed.
Keywords: Cloud computing, Macroeconomics, DSGE, Monopolistic/Oligopolistic market, Social welfare
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