The Economic Value of Modularity in the IPQoS Network: The Real Options Approach (ROA)

The Economic Value of Modularity in the IPQoS Network: The Real Options Approach (ROA)

Hak Ju Kim
DOI: 10.4018/jbdcn.2006010102
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As uncertainty in the markets and technologies of the network industry increases, a flexible architecture is needed by network service providers to maintain a competitive advantage. Since complete replacement of existing networks is not practical, and since it is costly for one operator to manage everything in a network, modularity in network design may be an efficient approach. This article is to construct a theoretical framework to support the decisions of network service providers in network design, to modularize or not and, if so, by how much. We develop a model to show the extent of modularity in network design by combining two important concepts: modularity from management and complementarity from economics. This will show how the extent of modularity in networks affects the value of networks with complementary components under uncertainty. For empirical testing, a simple QoS service model network is designed and simulated.

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