Network Effects and Diffusion Theory: Network Analysis in Economics

In this paper, some of the main results of an interdisciplinary research project on standards are presented and integrated into a single framework of technology diffusion. Based on network effect theory and diffusion theory, we present an agent-based simulation model that extends the traditional economical network perspective by incorporating structural determinants of networks (centrality, topology/density) from sociology and geography and individual decision making on the part of prospective technology users under realistic informational assumptions. Based upon these models, decision behavior in terms of the selection of standards and the diffusion of technological innovations in networks can be described. The model has so far served as both a tool for developing and evaluating network strategies in practical application like EDI networks or corporate directory service planning as well as for providing theoretical insights into standardization problems and possible solutions.