Cloud computing and its impact on the Japanese macroeconomy–its oligopolistic market characteristics and social welfare

The cloud computing market is rapidly expanding and changing 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. On the other hand, cloud computing services are being provided not only for simple data storage, but for many purposes through several different service models, such as SaaS (Software as a Service), PaaS (Platform as a Service) and IaaS (Infrastructure as a Service). Due to, among other factors, the nature of its network externalities, the market seems to be gradually shifting to a market with oligopolistic characteristics in which the services are provided by a limited number of big-name firms. In this paper, the impact of the shift of the cloud computing market to a market with oligopolistic characteristics on utility-based social welfare is quantitatively estimated and analyzed utilizing DSGE (Dynamic Stochastic General Equilibrium) model-based simulation. The main objectives of the paper, rather than to ascertain the exact change of utility-based social welfare, are (1) to determine whether there is a (realistic) shifting path of macroeconomic variables in Japan’s case, under the shift and (2) to illustrate the dynamic interaction of the macroeconomic variables. Utility-based social welfare is chosen, because for the purpose of evaluating policy measures it would be more suitable than GDP. Also, several kinds of policy measures for the sound development of the cloud computing market that the industry and government can take are discussed in a sense related to a market with oligopolistic characteristics.