An Economic Explanation Of The Internet: A Two-sided Market Approach

The Internet has been developing rapidly and has even caught the attention of mainstream media. Yet economic study of the industry is inadequate. This paper builds a model based on two-sided market, and studies the strategies of various participants in the Internet market. We also study the effect of different market structures and the introduction of cost factor. The results argue for the significance of open structure to the development of the Internet. We then apply the theoretical results to explain real life phenomena, reviewing the history of the Internet, portraying the features of Web 2.0 and the driving forces behind its boom. The implicit conflicts between existing framework of intellectual property and the development of Internet is also elaborated. The last part of the article is devoted to a comprehensive depiction of the development of China's Internet industry. Based on our theoretical findings, we also predict its evolution path and explore policy implications to the regulators.