Network Industries in the New Economy

European Business Journal, Vol. 14, pp. 116-32, 2002

18 Pages Posted: 13 May 2005

See all articles by John McGee

John McGee

University of Warwick

Tanya Sammut-Bonnici

University of Warwick - Warwick Business School; University of Malta

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In this paper we discuss two propositions: the supply and demand of knowledge, and network externalities. We outline the characteristics that distinguish knowledge- intensive industries from the general run of manufacturing and service businesses. Knowledge intensity and knowledge specialisation has developed as markets and globalisation have grown, leading to progressive incentives to outsource and for industries to deconstruct. The outcome has been more intensive competition. The paper looks at what is potentially the most powerful economic mechanism: positive feedback, alternatively known as demand-side increasing returns, network effects, or network externalities. We present alternative demand curves that incorporate positive feedback and discuss their potential economic and strategic consequences. We argue that knowledge supply and demand, and the dynamics of network externalities create new situations for our traditional industrial economy such that new types of economies of scale are emerging and "winner takes all" strategies are having more influence. This is the first of a pair of papers. A second paper will take the argument further and look at the nature of firms' strategies in the new world, arguing that technology standards, technical platforms, consumer networks, and supply chain strategies are making a significant contribution to relevant strategies within the new economy.

Keywords: knowledge, network externalities, competition, winner-takes-all, technology standards, consumer networks

Suggested Citation

McGee, John and Sammut-Bonnici, Tanya, Network Industries in the New Economy. European Business Journal, Vol. 14, pp. 116-32, 2002, Available at SSRN:

John McGee

University of Warwick ( email )

Gibbet Hill Rd.
Coventry, West Midlands CV4 8UW
United Kingdom

Tanya Sammut-Bonnici (Contact Author)

University of Warwick - Warwick Business School ( email )

Coventry CV4 7AL
United Kingdom

University of Malta ( email )



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