Competition and Coordination in the Network Economy1

The network economy refers to the ecosystem that centers on the Internet. It includes the network enablers (backbone providers, Internet service providers, and the last mile providers) as well as all the market participants whose activities are critically based on the Internet. Due to the unique characteristics of the network economy, the market structures in different segments of the network economy differ greatly. The traditional beliefs held by economists that perfectly competitive markets are the most efficient may not be true in all the layers of this emerging network economy. We discuss the market structures and competition in different layers of the network economy and the roles of the government in coordinating economic interests of these segments.