Network Economy

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The Network Economy

The history of economics of the Industrial Revolution since its beginnings is based on growth. Growth of people meant more customers and growth of production, which lead to growth in profits. This so-called “old” or traditional economy was based on bulk production, demanding large quantity of resources and limited know-how. The traditional economy, according to Alfred Marshall was based on diminishing returns. According to him producers with expansion of production will always run into limitations in the form of shrinking profits or rising costs. However, the industrial mass production of goods became less important in the last 30 years. Wriston’s prediction that “the technology upon which the market is based will not only not go away, but it will get better and faster and easier to use” (1998, p.343) came true. The bond between the computers and telecommunications created global market from money to commodities. The existence of a ”new” economy became more than evident. Few versions define the “new” economy in terms of “two principal developments: first, an increase in the economy's maximum sustainable growth rate and, second, the spread and increasing importance of information and communications technology” (Meyer, 2000). The purpose of this paper is to discuss the relationship between the “old” and “new” economy, the key players in each of them, the demand, supply and scarcity and the relevance of few economic experts and their theories. The terminology that will be used for the two distinguished economies will be industrial and traditional for “old” economy and information, knowledge and network for “new” economy.

Relationship between “Old” and “New” Economy

When looking at the relationship between the industrial and information economy one can notice that in the former object’s value is the sum of its obvious parts, while in the latter the additional value is given to the product through intangibles, such as design, brand and prestige. According to Glick and Plisch (2004) the emotional experience is another variable that adds to the value of the goods and services. Table 1 shows some of the value indicators for both traditional and network economy.

|Traditional Economy |Network Economy | |Scarcity drives value |Wide use drives value | |Economies of scales |Diseconomies of scale | |Competition |Collaboration | |Proximity is important |Location independence | |Predictive |Hard to foretell | |Trade secrets |Transparency | |The Media |Social Media | |Value is measurable |Value is emergent |

Table 1. Value indicators for traditional and network economy. Major difference between these two economies is the shift from diminishing to increasing returns. The diminishing returns refers to “progressive decrease in the marginal output of a production process as the amount of a single factor of production is increased, while holding the amounts of all other factors of production constant” (Wikipedia, 2011). In economy with...
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