Re-Thinking the Network Economy

About the Author

Stan Liebowitz is a renowned economist and professor of managerial economics at the University of Texas at Dallas. His work spans several critical areas of economics, including the intersection of technology and market behavior. Liebowitz is particularly noted for his critical analysis of the economic implications of new technologies, making him a prominent voice in discussions about the digital economy. In "Re-Thinking the Network Economy," he brings his extensive knowledge to bear on the misconceptions surrounding the Internet's impact on traditional economic principles. His clear, engaging style makes complex economic concepts accessible to a wide audience, from students and academics to business professionals.

Main Idea

The main premise of "Re-Thinking the Network Economy" is that despite the transformative nature of the Internet, traditional economic principles still apply. Stan Liebowitz argues that many early Internet companies failed because they disregarded basic economic concepts, such as the laws of supply and demand, economies of scale, and the importance of customer service. The Internet, he contends, offers significant business opportunities, but only for those who adhere to sound economic strategies. He emphasizes that success in the digital marketplace requires a deep understanding of these principles rather than a blind rush to capitalize on the latest technological trends.

Table of Contents

1. Basic Economics of the Internet
2. Racing to Be First
3. The (Non)Ubiquity of E-Tailing
4. Is Creating Value Profitable?
5. Can Advertising Revenue Support the Net?
6. Copyright and the Internet

Basic Economics of the Internet

In the opening chapter, Liebowitz challenges the notion that the Internet fundamentally changes the rules of economics. He asserts that the Internet's primary economic contribution is the reduction of information transmission costs. This capability, while revolutionary, does not negate traditional economic laws. The chapter explores the concept of network effects, which occur when a product's value increases as more people use it. Liebowitz points out that not all Internet products benefit from network effects. For example, a communication tool like email gains value with more users, but a niche software application might not.

"Network effects occur when a product becomes more useful to consumers in proportion to the number of consumers using that product." - Stan Liebowitz

He also discusses economies of scale, which allow companies to lower their average costs as production increases. This concept is crucial for Internet companies aiming to grow quickly to achieve a competitive advantage. However, Liebowitz cautions against assuming that economies of scale will always lead to market dominance. Quality, customer service, and other factors remain critical for long-term success.