Videoconferencing: Economic Arguments on an Overrated Communication Network

Abstract

For quite some time videoconferences have now been presented as a valuable alternative for business travel. But empirical evidence for a rising market share of this medium is hard to find. Explanations normally refer to the lack of knowledge in firms that hinders them to exploit the competitive advantages that could be gained by the use of this fanciful medium. This reference to irrational behavior is not very appealing, at least to economists. In this chapter, videoconferencing is first considered from a firm’s perspective. A firm decides on its least cost communication strategy by comparing the generalized cost of videoconferencing to the cost related to business travel. It is argued that the cost advantages of business travel are obviously still relevant in most cases. Second, videoconferencing is considered from a market perspective. On this level network externalities exist that hinder a wide use of the new medium. Moreover, regulation and infrastructure policy are further possible reasons for the low competitiveness of videoconferencing.