The International Handbook of Telecommunications Economics, Volume II
Edited by Gary Madden
2. Economics of the Internet Michael D. Pelcovits and Vinton G. Cerf INTRODUCTION As of late 2000 the Internet is continuing its rapid growth and evolution. The Internet had its origins as a US Defense Department project to link computers at a handful of research institutions, and has since evolved into a dynamic telecommunications and information medium, which links several hundred million users, several hundred thousand networks, and over 100 million servers worldwide. The aim in this chapter is to provide an insight into the technological and economic forces that fostered the success of the Internet, with the goal of giving a better understanding of how these forces will guide the Internet into the future. This chapter includes a brief introduction deﬁning the Internet, and a description of what distinguishes the Internet from earlier telecommunications and information networks. The history of the Internet emphasizes how it evolved in an open and ﬂexible manner, guided by a combination of government and marketplace forces. Information on the key institutional features of the Internet, major companies participating in the Internet market and the types of usage of the Internet are given. This provides the background necessary to discuss the economic forces that shape the Internet and to explain how the economics of the Internet are diﬀerent from those of traditional telecommunications networks. Finally, the chapter concludes with a bit of stargazing as to the future of the Internet. WHAT IS THE INTERNET? The Internet is an interconnected network of networks that...
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