Handbook on the Economics of the Internet
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Handbook on the Economics of the Internet

Edited by Johannes M. Bauer and Michael Latzer

As the single most important general purpose technology of recent times, the Internet is transforming the organization, competitive structure and business models of the private, the public and non-profit sectors. In 27 original chapters, leading authors discuss theoretical and applied frameworks for the study of the economics of the Internet and its unique economics as a global information and communications infrastructure. They also examine the effects of the Internet on economic transactions (including social production, advertising, innovation, and intellectual property rights), the economics and management of Internet-based industries (including search, news, entertainment, culture, and virtual worlds), and the effects of the Internet on the economy at large.
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Chapter 14: Internet architecture and innovation in applications

Barbara van Schewick


The Internet’s original architecture – its technical inner structure – was based on three design principles: the layering principle and two versions of the end-to-end arguments. Over the past years, the Internet’s architecture has been changing in ways that deviate from the Internet’s original design principles. Some of these changes are driven by network providers’ desire for more profit; some changes are the reaction to technical challenges the Internet is facing. This chapter examines how deviations from the broad version of the end-to-end arguments affect the economic environment for innovation in Internet applications, content, and services and the overall amount and quality of application innovation that will occur. It uses a general approach to studying the architecture of complex systems named ‘architecture and economics’. Architecture is understood as one of several constraints on human behavior and economic theory (broadly defined) is used to explore the effects of these constraints.

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