Network Economy

Networks are fundamental component in most economic transactions and thus play a crucial role in economic development. They connect market players either physically (e.g., transportation) or facilitate exchange of information in the market. Although every major breakthrough in networking technology has typically transformed the economy, there is merit in the argument that the economic effect of information technology, a phenomenon known as the Network Economy, is of an extremely large scale. This is mainly because rather than simply improving sellers’ physical access to markets and informing buyers about available products and services, the Internet has emerged as a marketplace on its own. By virtue of providing free and bidirectional flow of information among players, the network economy has shifted the focus from exchange of goods and services to exchange of ideas (Leibowitz, 2002). The latter may materialise into an actual transaction (by means of e-commerce) or create value for intellectual capital (Rifkin, 2001).

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The network economy has spread in an incremental rate, changing not only the number of potential buyers and sellers but also the manner by which transactions are being conducted. The online marketplace requires much less capital, significantly reduces business risks derived from fixed costs and thereby removing barriers for new suppliers to access potential customers. In order to avoid being a drop in the ocean of online shops, both new and established sellers need platforms of marketing communications that maximise their online presence. Similarly, buyers need an efficient way to search, compare and learn about market offerings, and hence the demand for services that simplify consumer decision-making (Leibowitz, 2002).

eBay is a predominant example of services that answer the need for simplicity and efficiency in the digital marketplace. Anyone with Internet access can join the market as buyer and/or seller. Goods and services are offered, reviewed, compared and traded in perhaps the most transparent marketplace ever existed. Unlike online retailers, eBay merely supplies the network – the means of communication among market players – rather than acts as a seller. Its added value is the ability to attract potential buyers and sellers and to promote transactions by connecting them, as the business model is based on commissions generated from every transaction. This cannot be done unless members will have not only a simple, streamlined process to find one another, to gage alternatives and to use eBay’s reputation as a safe marketplace to reduce uncertainties regarding unknown parties to a transaction. Finally, since “in the Network Economy, more gives more” (Kelly, 1997), eBay’s own value increases with its ability to attract members and to expand the network, which, in turn, lead to an exponential increase in the volumes of trade that takes place on its servers.

Refrences

Kelly, K. (1997, September). New Rules for the New Economy: Twelve Dependable Principles for Thriving in a Turbulent World. Wired. Retrieved from http://www.wired.com/wired/archive/5.09/newrules_pr.html.
Leibowitz, S.J. (2002). Basic economics of the internet from Re-Thinking the Network Economy: The True Forces that Drive the Digital Marketplace. New York: Amacom.
Rifkin, J. (2001). The Age of Access: The New Culture of Hypercapitalism, Where all of Life is a Paid-For Experience. New York, NY: Tarcher Penguin Putnam.

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