Economics and Networks—An Introduction

The “users layer” is an essential part of networks.

Overview

Should you care about economic aspects of networking? And if so, what should you know about them?

Economic incentives often drive technological developments. The best products are not always the most successful. Many useful ideas do not get implemented.  Economics attempts to explain these phenomena and understanding them can lead to better designs.

One abstract view is that users are at the top layer of networks and that they follow economic principles. By ignoring the “users layer” one cannot hope to understand how networks really behave.

The goal of this brief tutorial is to highlight the key principles one should be aware of. These principles enable to make sense of the pros and cons of network neutrality, service differentiation, incentives for security, the role of regulations and standard bodies.

 

This tutorial was written while the author was supported by NSF under grants 0435480 (NeTS-NR: Economics Mechanisms for Networks) and 0627161  (Collaborative Research: NeTS-FIND: Market-Enabling Network Architecture).