Internet Economics: Models, Mechanisms And Management

222 Pages·2017·3.192 MB·English

by  Hans W. Gottinger

Internet Economics: Models,
Mechanisms and Management
Authored by
Hans W. Gottinger
STRATEC Munich, Germany
Internet Economics: Models, Mechanisms and Management
Author: Hans W. Gottinger
ISBN (Online): 978-1-68108-546-3
ISBN (Print): 978-1-68108-547-0
© 2017, Bentham eBooks imprint.
Published by Bentham Science Publishers – Sharjah, UAE. All Rights Reserved.
First published in 2017.
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CONTENTS
FOREWORD ........................................................................................................................................... i
PREFACE ................................................................................................................................................ iii
Organization ............................................................................................................................ iv
CONFLICT OF INTEREST ......................................................................................................... vii
ACKNOWLEDGEMENTS ........................................................................................................... vii
CHAPTER 1 THE EVOLVING INTERNET: TECHNOLOGY, REGULATION AND PRICING 1
1.1. INTRODUCTION ................................................................................................................... 1
1.2. INDUSTRY STRUCTURE ..................................................................................................... 4
1.3. TELECOMMUNICATIONS AND THE INTERNET ......................................................... 5
1.4. INTERNET PRICING ............................................................................................................ 5
1.5. QUALITY OF SERVICE (QOS) ........................................................................................... 7
1.6. PRICING CONGESTION ...................................................................................................... 7
1.7. COMPETITIVE BIDDING IN LARGE COMMUNICATION MARKETS .................... 9
1.8. INTERNET AND TELECOMMUNICATIONS REGULATION ...................................... 10
1.9. INTERNET COMMUNICATION TECHNOLOGIES: ATM AND B-ISDN ................... 11
1.10. BURSTINESS ........................................................................................................................ 12
1.11. VIRTUAL CHANNEL .......................................................................................................... 13
1.12. SIMPLE ECONOMICS OF INTERNET RESOURCE ALLOCATION AND
PRICING ......................................................................................................................................... 13
1.13. BANDWIDTH-BUFFER TRADEOFF ............................................................................... 14
1.14. PRICING THE RESOURCES ............................................................................................. 15
The Price Function .................................................................................................................. 16
Resource Balancing ................................................................................................................ 17
1.15. PRICE ELASTICITIES ........................................................................................................ 17
1.16. RESOURCE ALLOCATION ALGORITHM .................................................................... 18
REFERENCES ............................................................................................................................... 19
CHAPTER 2 NETWORK ECONOMIES FOR THE INTERNET –CONCEPTUAL MODELS 21
2.1. INTRODUCTION ................................................................................................................... 21
2.2. THE INTERNET AS A REFLECTION OF THE ECONOMY ......................................... 24
Agents and Network Suppliers ............................................................................................... 25
Multiple Agent-Network Supplier Interaction ........................................................................ 25
2.3. INTERNET RESOURCES ..................................................................................................... 27
ATM and B-ISDN ................................................................................................................... 28
Traffic in B-ISDN ................................................................................................................... 29
Congestion Control ................................................................................................................. 30
Service Discipline ................................................................................................................... 30
2.4. THE RATIONALE OF ECONOMIC MODELS IN NETWORKING .............................. 31
Decentralization ...................................................................................................................... 31
Limiting Complexity ............................................................................................................... 31
Pricing and Performance ......................................................................................................... 32
Usage Accounting, Billing and Dimensioning ....................................................................... 32
Administrative Domains ......................................................................................................... 32
Scalability ............................................................................................................................... 32
2.5. MODELLING APPROACHES ............................................................................................. 32
Optimal Allocation and QoS ................................................................................................... 33
Scheduling and Pricing Mechanisms ...................................................................................... 34
Network and Server Economies .............................................................................................. 35
Allocation and Pricing Models ............................................................................................... 37
Specific Problems of Economic Resource Allocation ............................................................ 38
2.6. NETWORK ECONOMY ........................................................................................................ 39
Utility Parameters ................................................................................................................... 40
Packet Loss ............................................................................................................................. 41
2.7. EQUILIBRIUM PRICE AND CONVERGENCE ............................................................... 42
Competitive Pricing Algorithm (CPA) ................................................................................... 45
2.8. EXAMPLE OF TWO AGENTS AND ONE SUPPLIER .................................................... 45
CONCLUSION ............................................................................................................................... 47
APPENDIX ...................................................................................................................................... 48
A. The Network Economy ...................................................................................................... 48
B. The Server Economy .......................................................................................................... 50
REFERENCES ............................................................................................................................... 53
CHAPTER 3 NETWORK ECONOMIES FOR THE INTERNET: FURTHER
DEVELOPMENTS .................................................................................................................................. 56
3.1. INTRODUCTION ................................................................................................................... 56
3.2. TWO EXAMPLES OF NETWORK OPERATIONS .......................................................... 58
Network Routing ..................................................................................................................... 58
Transaction Processing ........................................................................................................... 59
3.3. A MODEL OF NETWORK AND SERVER ECONOMY .................................................. 61
The Network Economy ........................................................................................................... 61
Price Equilibrium .................................................................................................................... 63
Proposition 3.1 ........................................................................................................................ 64
Proposition 3.2 ........................................................................................................................ 64
Agent Routing and Admission ................................................................................................ 65
Admission Control .................................................................................................................. 66
The Server Economy ............................................................................................................... 67
Agents and Network Suppliers ...................................................................................... 67
Multiple Agent Network Supplier Interaction ............................................................... 67
Proposition 3.3 .............................................................................................................. 70
Proposition 3.4 .............................................................................................................. 70
Transaction Routing ...................................................................................................... 71
CONCLUSION ............................................................................................................................... 72
APPENDIX: PROOF OF PARETO OPTIMAL ALLOCATIONS .......................................... 72
REFERENCES ............................................................................................................................... 74
CHAPTER 4 INTERNET ECONOMICS OF DISTRIBUTED SYSTEMS .................................... 75
4.1. INTRODUCTION ................................................................................................................... 76
4.2. THE RATIONALE OF ECONOMIC MODELS IN NETWORKING .............................. 77
Decentralization ...................................................................................................................... 77
Pricing and Performance ......................................................................................................... 77
Organizational Domains ......................................................................................................... 78
Scalability ............................................................................................................................... 78
4.3. MECHANISM DESIGN APPROACHES ............................................................................. 78
Network and Server Economies .............................................................................................. 79
Server Economy: Architecture for Interaction ........................................................................ 79
Access and Dissemination ...................................................................................................... 80
Performance Requirements ..................................................................................................... 80
Performance ............................................................................................................................ 81
4.4. ALLOCATION AND PRICING MODELS .......................................................................... 81
Allocation Principles ............................................................................................................... 82
4.5. THE DATA MANAGEMENT ECONOMY ......................................................................... 82
4.6. STRATEGIC INTERNET MANAGEMENT ISSUES ........................................................ 83
Universal Access ..................................................................................................................... 83
Congestion Problems .............................................................................................................. 84
Quality-of-Service Characteristics .......................................................................................... 84
Internet and Telecommunications Regulation ........................................................................ 85
4.7. DISCUSSION ........................................................................................................................... 85
CONCLUSION ............................................................................................................................... 87
APPENDIX: SERVICE ARCHITECTURES FOR THE INTERNET ECONOMY ............... 87
1. Centralized Read-Write (RW) Architecture ....................................................................... 90
2. Centralized Transfer-Access (TA) Architecture ................................................................. 90
3. Decentralized Index Based (IB) Architecture ..................................................................... 90
Specialized Features in Centralized and Decentralized Models ............................................. 90
Performance Model for RW, TA and IB Architectures .......................................................... 91
Comparison of Response Time ............................................................................................... 91
REFERENCES ............................................................................................................................... 91
CHAPTER 5 GENERALIZED QUALITY OF SERVICE ON QUEUEING NETWORKS FOR
THE INTERNET ..................................................................................................................................... 93
5.1. INTRODUCTION ................................................................................................................... 93
A Simple Mechanism Design ................................................................................................. 95
5.2. UTILITY AND QUEUEING PARAMETERS ..................................................................... 96
Packet Loss ............................................................................................................................. 96
Loss Probability Requirement: Utility Function ..................................................................... 97
Loss Probability Constraints ................................................................................................... 98
Max and Average Delay Requirements .................................................................................. 98
Proposition 5.1 ........................................................................................................................ 99
Proposition 5.2 ........................................................................................................................ 100
Tail Probability Requirements: Utility Functions ................................................................... 101
5.3. SERVICE ECONOMY: ARCHITECTURE FOR INTERACTION ................................. 104
Access and Dissemination ...................................................................................................... 105
Performance Requirements ..................................................................................................... 105
Performance ............................................................................................................................ 106
CONCLUSION ............................................................................................................................... 106
REFERENCES ............................................................................................................................... 107
CHAPTER 6 NETWORK PLATFORMS .......................................................................................... 109
6.1. INTRODUCTION ................................................................................................................... 110
6.2. TWO-SIDED PLATFORMS .................................................................................................. 113
Assumptions and Implications ................................................................................................ 113
Platform Utility ....................................................................................................................... 114
Consumer Utility ..................................................................................................................... 115
6.3. REVIEW OF PLATFORM ECONOMICS .......................................................................... 116
6.4. PLATFORM OPERATIONS ................................................................................................. 119
1. Amazon Web Services Platform ......................................................................................... 119
2. IP Multimedia Systems (IMS) Platform ............................................................................. 120
3. Social Network Platform ..................................................................................................... 120
CONCLUSION ............................................................................................................................... 121
REFERENCES ............................................................................................................................... 122
CHAPTER 7 THE INTERNET OF THINGS AND THE INDUSTRIAL INTERNET ................. 125
7.1. INTRODUCTION ................................................................................................................... 125
7.2. BACKGROUND RESEARCH ON INTERNET OF THINGS ........................................... 127
Industrial Driving Forces in the IoT Context .......................................................................... 127
7.3. SPECIFIC TECHNOLOGIES AND USAGE ....................................................................... 129
7.4. BREADTH OF APPLICATION AREAS ............................................................................. 132
Smart Infrastructure ................................................................................................................ 133
Healthcare ............................................................................................................................... 133
Supply Chains/Logistics ......................................................................................................... 134
7.5. SECURITY OF THINGS ........................................................................................................ 134
Privacy .................................................................................................................................... 135
7.6. ECONOMIC BENEFITS ........................................................................................................ 135
7.7. FUTURE DIRECTIONS ......................................................................................................... 137
SUMMARY AND CONCLUSION ............................................................................................... 139
APPENDIX: SMART HOME SKELETON DESIGN – AN ILLUSTRATIVE EXAMPLE 139
Smart Home Network ............................................................................................................. 139
REFERENCES ............................................................................................................................... 141
CHAPTER 8 THE INTERNET, DATA ANALYTICS AND BIG DATA ....................................... 144
8.1. INTRODUCTION ................................................................................................................... 144
8.2. BIG DATA DIMENSIONS ..................................................................................................... 149
8.3. THE 3 VS: ISSUES AND CHALLENGES ........................................................................... 151
Heterogeneity .......................................................................................................................... 151
Scale ........................................................................................................................................ 152
Timeliness ............................................................................................................................... 152
Complexity .............................................................................................................................. 152
Quality ..................................................................................................................................... 152
Security and Privacy ............................................................................................................... 153
8.4. BIG DATA ANALYTICS AND SECURITY CHALLENGE ............................................. 154
8.5. BIG DATA ANALYTICS FOR INDUSTRY 4.0 .................................................................. 157
8.6. STATISTICAL AND COMPUTATIONAL NEEDS FOR BIG DATA ............................. 160
CONCLUSION ............................................................................................................................... 164
REFERENCES ............................................................................................................................... 165
CHAPTER 9 INTERNET, INNOVATION AND MACROECONOMICS ..................................... 167
9.1. INTRODUCTION ................................................................................................................... 168
9.2. BASICS OF NETWORK ECONOMY .................................................................................. 169
9.3. ECONOMIC TRANSFORMATION ..................................................................................... 170
9.4. ASSESSING THE TRANSFORMATION ............................................................................ 173
9.5. THE PRODUCTIVITY PARADOX ...................................................................................... 176
9.6. GROWTH PROCESSES ........................................................................................................ 181
9.7. THE GLOBAL NETWORK ECONOMY ............................................................................ 183
Intangible Assets ..................................................................................................................... 185
Information Markets ............................................................................................................... 186
CONCLUSION ............................................................................................................................... 186
REFERENCES ............................................................................................................................... 187
ABBREVIATIONS .................................................................................................................................. 190
GLOSSARY ............................................................................................................................................. 193
SUBJECT INDEX .................................................................................................................................... 203
i
FOREWORD
A front-page leader in The Economist (28 January, 2017) showcases how in an era of
protectionism, global companies are now in retreat. On the other hand, the world has become
even more globalized and inter-connected, breeding a new generation of global enterprises
and nimble, innovative small-and-medium-sized businesses, thanks to the pervasive internet
and its integrated technologies and platforms. China alone now boasts of some 700 million
netizens, more than double the entire population of the United States. The number of internet
users is similarly rising across the globe, including Latin America and Africa, thanks to the
ubiquitous smart phone and supporting networks.
Nothing illustrates the power of internet-economics better than President Trump’s apparent
agreement that Jack Ma’s Alibaba internet-driven global business empire could help create a
million American jobs by selling US goods and services to China and the rest of Asia,
Trump’s China-bashing and protectionist rhetoric notwithstanding.
According to Klaus Schwab, Founder and Executive Chairman of the World Economic
Forum, instead of simple digitization (the Third Industrial Revolution), innovative
combination of technologies (the Fourth Industrial Revolution) is upending business models,
labor markets, socio-political matrix, and is reshaping our economic, social, cultural, and
human environments.
A key trend is the development of technology-enabled platforms that combine both demand
and supply to disrupt existing industry structures, such as the “sharing” or “on demand”
internet economy.
The dynamics are multiplied by technology breakthroughs in artificial intelligence, robotics,
the Internet of Things, autonomous vehicles, 3-D printing, nanotechnology, biotechnology,
materials science, energy storage, and quantum computing.
In this topsy-turvy world of the 21st century, understanding internet economics, its complexity
and operations, as well as its models, mechanisms and management, would be invaluable to
practicing network designers and engineers as well as to industry managers and academic
researchers.
For them and broader policy formulators, Dr Hans W. Gottinger’s book is a treasure-trove of
timely, meticulous research.
Readers will find scholarly treatments of a variety of interrelated topics, including internet
supply and demand, supply chain analytics, distributed market agencies, Quality of Service
(QoS), network modelling and security, aggregated outcomes, output analysis covering
financial services, healthcare and legal services, total factor productivity, Big Data, cloud
computing, and much more.