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Network Industries in the New Economy

Author

Listed:
  • John, McGee
  • Tanya, Sammut-Bonnici

Abstract

In this paper we discuss two propositions: the supply and demand of knowledge, and network externalities. We outline the characteristics that distinguish knowledge-intensive industries from the general run of manufacturing and service businesses. Knowledge intensity and knowledge specialisation has developed as markets and globalisation have grown, leading to progressive incentives to outsource and for industries to deconstruct. The outcome has been a mixture of more intensive competition laced with points and periods of high differentiation. The paper looks at what is potentially the most powerful economic mechanism: positive feedback, alternatively known as demand-side increasing returns, network effects, or network externalities. This section provides the basis for alternative demand curves that incorporate positive feedback and derives their potential economic and strategic consequences. We argue that the propositions of knowledge supply and demand, and the dynamics of network externalities create new situations for our traditional industrial economy such that new types of economies of scale are emerging and ‘winner takes all’ strategies are having more influence. Our second paper takes the argument further and looks at the nature of firms’ strategies in the new world arguing that attention to technology standards, technical platforms, consumer networks, and supply chain strategies have created a significant contribution to strategy models within the new economy.

Suggested Citation

  • John, McGee & Tanya, Sammut-Bonnici, 2002. "Network Industries in the New Economy," MPRA Paper 50623, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:50623
    as

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    References listed on IDEAS

    as
    1. Arthur, W Brian, 1989. "Competing Technologies, Increasing Returns, and Lock-In by Historical Events," Economic Journal, Royal Economic Society, vol. 99(394), pages 116-131, March.
    2. Nicholas Economides & Fredrick Flyer, 1997. "Compatibility and Market Structure for Network Goods," Working Papers 98-02, New York University, Leonard N. Stern School of Business, Department of Economics.
    3. B. Dumont, 2000. "Carl Shapiro and Hal R. Varian, information rules: a strategic guide to the network economy," Competition and Regulation in Network Industries, Intersentia, vol. 1(1), pages 101-108, September.
    4. Katz, Michael L & Shapiro, Carl, 1985. "Network Externalities, Competition, and Compatibility," American Economic Review, American Economic Association, vol. 75(3), pages 424-440, June.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    innovation; innovation diffusion; network effects; network externalities; standards;
    All these keywords.

    JEL classification:

    • O3 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • O32 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Management of Technological Innovation and R&D
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes

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