Servizio Comunitario di Informazione in materia di Ricerca e Sviluppo - CORDIS

iCities models and results

The models we outline here materialize the basic constituents of iCities approach on the formation and growth of Information Cities that emphasizes the role of increasing returns in explaining agglomeration and fast growth trends in the emerging World Wide Web economy. The results from the simulations we have obtained in this project clearly show that various self-reinforced feedback mechanisms (i.e. increasing returns) drive the organization of the web economy and explain a particularly strong pattern of concentration of people and economic activity in a few web locations.

In the last ten years increasing returns have been the subject of intensive research in economics. With increasing returns, economists say, competitive (i.e. shared) markets are not longer guaranteed, since if one product gets "ahead" in early stages of competition, it tends to stay ahead and ever increase its leading distance from the other products. The sources vary, but generally speaking, increasing returns operate: as large set up or fixed costs (giving an advantage to the large scale production units), learning benefits, coordination effects (giving an advantage to participations in formal or informal networks of agents taking similar action) and, of course, self-reinforcing expectations (usual behavior of the stock-markets). In this typology, iCities project adds a new category: informational increasing returns.

To describe how exactly web markets work under increasing returns, we have proposed two different but complementary views of the market-making functionality of the web environment.

1. According to the first view, Internet users interact each other or with web sites in many other ways than through the price mechanism. Or, putting it in a different way, web markets seem to have a strong institutional identity, in the sense that consumer choices (i.e. the choice to visit a web site) are simultaneously:

- Conditioned by individual tastes/preferences and,
- Embedded in identifiable action networks and ongoing relationships, which are created during the web navigation process. Recent studies on the behavior of the Internet users strongly support this view.

Two behavioral models based on this view. The starting question is the same: Why cities, information cities, i.e. large agglomerations of people and economic activity emerge in the virtual world? In the Internet, transportation costs are zero. Web sites can easily be reached from anybody and everywhere with no particular cost. In these conditions of equal access distance, one would rather expect a smooth web geography with a relatively even distribution of visitors per site. The first model we develop reproduces an interesting regularity of the web economy: the distribution of visitors per Internet site surprisingly follows a universal power law similar to what found in distribution of larger cities in US (and elsewhere) or in income distribution. The model provides a simple explanation of this phenomenon mostly based on the mechanisms through which information is transmitted in the Internet. The second model is actually a general class of models that capture the salient features of the dynamics of agglomeration in the web. The objective here is to examine evolutionary dynamics in the formation of the web geography and economy by studying an experimental environment, built as an agent-based computational model. We populate this environment with individual agents having preferences for web locations that depend upon location’s attractiveness but we also assume benefits from agglomeration (when agents make choices about web sites, they receive a payoff depending on the number of agents having already visited that site at the time of choice).

2. The second view perceives the web markets as differentiated markets,

- Implying search costs for the consumer and,
- Imposing coalitions between web sites as a response to differentiated competition.

Participating in a coalition, this may be seen as a choice of a strategy in reaction to what other players are deciding. This is a typical non-cooperative game that seems to apply in many web cases, from Internet portal alliances to multi-product intermediaries and to collaborative commerce initiatives. A specific iCities model studies the formation and the evolution of such alliances.

3. Finally, we have build two additional models with particular interest as far as it concerns aggregation/segregation trends over the web. In the first model, we examine the influence these agglomerations may have on the successful diffusion of a certain category information products over the Internet. In the second model we outline principles of cluster formation in environments where users and suppliers locate in an information city while motivated from common preferences.

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Reported by

Loefors Knwsou
71409 Heraklion