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Strategic Analysis of Flow Networks (Strategic Flows)
Start date: Dec 1, 2008, End date: Nov 30, 2010 PROJECT  FINISHED 

Thanks to the decreased cost of transportation and communication, the world became a densely connected network. This is particularly true for economics. Regional developments affect the rest of the world. Similarly, global trends influence all regions. International trade connects world markets to the extent that the world prices are determined by a global process. The price of petrol is influenced by the Chinese economy, Middle East politics and the weather in the North Sea. The market for natural gas presents an even more complex example. There exists no world price for natural gas and the local prices are determined by the structure of the pipelines. Each country affects the price through its connections. This is also the case for commonly shared natural resources like fisheries, fresh water sources etc. A structural analysis is required to understand the patterns of interaction and to quantify the influence that countries or markets have on each other. The study of interconnected units, Graph Theory, is a well established branch of mathematics. It provides us with tools and techniques of structural analysis. We will use it to examine the networks formed by the suppliers and demanders in international markets. We will determine which links are crucial for connecting the network. We will quantify and measure network concepts like centrality, connectivity, denseness, etc. The economic units that form a network act strategically. Each economic agent takes into account the effect its actions will have on others. This makes our analysis even more interesting. The network structure influences agents’ decisions and plays a strategic role. We will make use of Game Theory to analyse strategic behavior. We will determine what is the best strategy for an economic unit in the network. We will explore how multiple units can improve their position through connections and/or cooperation.

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