The Network(ed) Economy
The Nature, Adoption and Diffusion of Communication Standards
Published on 11. December 2007
XXVII, 268 pages
978-3-8350-9213-6 (ISBN)
Description
Modern communication channels together with new electronic media stan dards are constantly changing traditional interaction patterns of humans and even machines In an increasingly globalized and networked world. Such a communication-based interaction is of pivotal economic importance in order to manage efficiently inter-organizational cooperation and business information flows. Consequently, the availability of generally accepted electronic commu nication standards is essential in order to decrease communication-related transaction costs. Roman Beck elaborates in his dissertation The Network(ed) Economy the im portance of the so far independently from each other discussed diffusion the ory on the one hand and network effect theory on the other hand. However, Roman Beck not only connects the two theories epistemologically, but also develops and extends those theories by providing a network diffusion model. The core of his model is the so-called network effect helix, where a dynamic and self-enforcing interplay between direct and indirect network effects is de ployed to simulate diffusion patterns and paths of communication standards. In his analysis, Roman Beck especially focused on the critical diffusion period be tween the market launch of a new communication standard and (in case of a successful diffusion) the achievement of a critical mass of adopters. His re search results and consequently the chosen title of the thesis are capable to il lustrate the overall topic of his work in the interesting area between an incom pletely interconnected "networked economy" on the one hand and a com pletely interconnected "network economy".
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Book
07/2006
1st Edition
Deutscher Universitätsverlag
€53.49
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Persons
Dr. Roman Beck ist wissenschaftlicher Assistent von Prof. Dr. Wolfgang König am Institut für Wirtschaftsinformatik der Universität Frankfurt/Main.
Content
Diffusion and Innovation Theory.- Network Effect Theory.- Diffusion of E-Business Standards: Empirical Results.- Developing E-Business Standards.- Simulation of the Diffusion of Network Effect Goods.- Conclusions.- Future Research.
6 Simulation of the Diffusion of Network Effect Goods (S. 159-160)
The diffusion of communication standards such as traditional EDI standards, but also newer ones such as InternetEDI, WebEDI, or even XML-based data communication standards is lagging behind the expected degree of widespread use although the benefits accompanying with these standards were never in doubt. It is not only SMEs who have not completely adopted these standards, but also even large enterprises with massive communication traffic are often reluctant to adopt, and therefore do not use all possible electronic data communication standards.
EDI standards and communication standards in general seem to be special and different from other products or goods that can be used without the necessity of being a product that is widely adopted among other market participants. Therefore, the diffusion of such network effect standards is difficult to predict and often remains below the expected degree of diffusion. Standards which are not able to overcome the early phase of diffusion (from the start-up until reaching critical mass or threshold) will never become accepted market standards.
Apart from the diffusion of open, unsponsored EDI standards among firms this phenomenon is also observable for proprietary, sponsored standards in the telecommunication markets, such as for WAP, i-mode, or UMTS. While the anticipation of the possible diffusion paths of communication standards in unsponsored networks is of importance primarily for adopters (or potential adopters) of a new standard to enable them to decide whether to standardize or not, the anticipation of consumer behavior is also of importance for providers. If, e.g., a sponsored standard is competing with an unsponsored one, then a provider has a choice of certain market parameters for her penetration strategy.
Apart from subsidized prices or side payments, a provider can also stress certain components of a standard during the diffusion stage to meet the demands of potential adopters in accordance with the results of the market simulation. From an economic perspective, a focus on the user of a standard rather than concentration on the supplier is more interesting in terms of understanding the development of a user network characterized by adopter-side economies of scope. The findings of the microeconomic bottom-up view of the adoption behavior of single market participants reveal market strategies for suppliers, while an inverse macroeconomic top-down view cannot. As described earlier, the question of how to describe or even solve the start-up problem for communication and compatibility standards in network effect markets remains unanswered.
Due to the complex interplay between adopters of standards and the network benefits which change constantly during the diffusion process, the detailed analysis of all network externalities linked with the adoption is necessary to describe all possible paths of diffusion. Earlier research work on the diffusion of standards in network effect markets has focused on the allocation implications and market structure after overcoming the start-up problem, i.e. the market concentration tendency of sponsored standards towards a monopolistic market. But whether, however, the critical early diffusion phase up to the point of reaching critical mass can be overcome and described methodically, remains open so far.
The diffusion of communication standards such as traditional EDI standards, but also newer ones such as InternetEDI, WebEDI, or even XML-based data communication standards is lagging behind the expected degree of widespread use although the benefits accompanying with these standards were never in doubt. It is not only SMEs who have not completely adopted these standards, but also even large enterprises with massive communication traffic are often reluctant to adopt, and therefore do not use all possible electronic data communication standards.
EDI standards and communication standards in general seem to be special and different from other products or goods that can be used without the necessity of being a product that is widely adopted among other market participants. Therefore, the diffusion of such network effect standards is difficult to predict and often remains below the expected degree of diffusion. Standards which are not able to overcome the early phase of diffusion (from the start-up until reaching critical mass or threshold) will never become accepted market standards.
Apart from the diffusion of open, unsponsored EDI standards among firms this phenomenon is also observable for proprietary, sponsored standards in the telecommunication markets, such as for WAP, i-mode, or UMTS. While the anticipation of the possible diffusion paths of communication standards in unsponsored networks is of importance primarily for adopters (or potential adopters) of a new standard to enable them to decide whether to standardize or not, the anticipation of consumer behavior is also of importance for providers. If, e.g., a sponsored standard is competing with an unsponsored one, then a provider has a choice of certain market parameters for her penetration strategy.
Apart from subsidized prices or side payments, a provider can also stress certain components of a standard during the diffusion stage to meet the demands of potential adopters in accordance with the results of the market simulation. From an economic perspective, a focus on the user of a standard rather than concentration on the supplier is more interesting in terms of understanding the development of a user network characterized by adopter-side economies of scope. The findings of the microeconomic bottom-up view of the adoption behavior of single market participants reveal market strategies for suppliers, while an inverse macroeconomic top-down view cannot. As described earlier, the question of how to describe or even solve the start-up problem for communication and compatibility standards in network effect markets remains unanswered.
Due to the complex interplay between adopters of standards and the network benefits which change constantly during the diffusion process, the detailed analysis of all network externalities linked with the adoption is necessary to describe all possible paths of diffusion. Earlier research work on the diffusion of standards in network effect markets has focused on the allocation implications and market structure after overcoming the start-up problem, i.e. the market concentration tendency of sponsored standards towards a monopolistic market. But whether, however, the critical early diffusion phase up to the point of reaching critical mass can be overcome and described methodically, remains open so far.
