The development of computer networks: First results from a microeconomic model

Abstract.

 Computer networks like the Internet are gaining importance in social and economic life. The accelerating pace of the adoption of network technologies for business purposes is a rather recent phenomenon. Many applications are still in the early, sometimes even experimental, phase. Nevertheless, it seems to be certain that networks will change the socioeconomic structures we know today. This is the background for our special interest in the development of networks, in the role of spatial factors influencing the formation of networks, and consequences of networks on spatial structures, and in the role of externalities. This paper discusses a simple economic model – based on a microeconomic calculus – that incorporates the main factors that generate the growth of computer networks. The paper provides analytic results about the generation of computer networks. The paper discusses (1) under what conditions economic factors will initiate the process of network formation, (2) the relationship between individual and social evaluation, and (3) the efficiency of a network that is generated based on economic mechanisms.