Network Economics

Network Economics

-Kartik Dighe

MBA MKT 670

01686291

Networks have served as the base for connecting humans to one another. Roads, bridges, waterways, phone are all examples of network. Animals were used as vehicles, vehicles evolved, boats/ships were used to travel long, the airway was covered through airplanes. Networks exist everywhere, communications, computers, internet, etc. A network consists of two basic things, nodes and links. The network links and nodes are complementary to each other.

Examples of networks that are the foundation of economy are

• Transportation
• Communication
• Energy
• Financial network

Network Economics has two definitions:

• Broad definition: An industry that connects users to each other or to producers through a connected system (or systems) of physical infrastructure.
• Economic definition: An industry whose good or service increases in value to each individual user as the number of other users of the same good or service increases.

 Types of Networks:

• Physical networks

• telephone, electrical
• railroad
• airlines

• High Technology (real)

• computer, fax machine, compatible modems
• email, ATMs, Internet

• High Technology (virtual)

• Macintosh users, iPhone users
• Nintendo 64 users, Android users

Fundamentals of network industry:

        The world Economy is largely influenced by the network industry. Telecommunication industry being the biggest industry, provides us with voice and data services which includes the internet and the world wide web. Another major network industry is the computer and hardware industry, this industry alongside of the telecommunication industry has been one of the most influential industry for the growth and has helped boom the world economy as a very faster rate. In the financial sector, networks include financial exchanges of bonds, equities, loans, B2B, B2C, credit, debit card, banking networks (ATMs), etc.

Benefits and its role in Marketing:

Network industries often provide its nodes multiples benefits. It is always better to be connected to a bigger network than to a smaller one. There is a viscous cycle in the network industry that tells us about how success feeds itself.  Companies compete by expanding their networks, they increase the value by interconnecting with other networks. A pre-established network can provide various things which a new network can take large amount of time. It can be used in providing

• Necessities: channels of trade, demographics, trade market, etc.
• Infrastructure: factories, roadways, waterways
• Pre-defined market: target market, market demographics
• Economic growth
• Connection through the nodes and links

Problems:

The shortest path problem: This problem seeks to determine the most efficient path from an origin node to a destination node. This also known as a Travelling sales man problem. It helps us find the best path for getting from point A to D, while also visiting the points B and C.

Uses: 

•  Transportation and telecommunications.
•  Simple building evacuation models
•  DNA sequence alignment
•  Dynamic lot-sizing with backorders
•  Assembly line balancing
•  Compact book storage in libraries.

The maximum flow problem: This problem determines the maximum flow that one can send from an origin node to a destination node, given that there are capacities on the links that cannot be exceeded. If the network has the capacity to carry n number of things, this problem will help determine the value of n.