nep-ict New Economics Papers
on Information and Communication Technologies
Issue of 2006‒07‒28
four papers chosen by
Walter Frisch
University Vienna

  1. Optimal Matching and Social Sciences By Laurent Lesnard
  2. Price Peer-to-Peer Networks: A Mechanism Design Approach By Oksana Loginova; X. Henry Wang; Haibin Lu
  3. Co-ordination and Lock-in: Competition with Switching Costs and Network Effects By Paul Klemperer; Joseph Farrell
  4. The Theory of Money and Financial Institutions: A Summary of a Game Theoretic Approach By Martin Shubik

  1. By: Laurent Lesnard (Crest)
    Abstract: This working paper is a reflection on the conditions required to use optimal matching (OM) in social sciences. Despite its striking success in biology, optimal matching was not invented to solve biological questions but computer science ones: OM is a family of distance concepts originating in information and coding theory were it is known under various names among which Hamming, and Levenshtein distance. As a consequence, the success of this method in biology has nothing to do with the alleged similarity of the way it operates with biological processes but with choices of parameters in accordance with the kind of materials and questions biologists are facing. As materials and questions differ in social sciences, it is not possible to import OM directly from biology. The very basic fact that sequences of social events are not made of biological matter but of events and time is crucial for the adaptation of OM: insertion and deletion operations warp time and are to be avoided if information regarding the social regulation of the timing of event is to be fully recovered. A formulation of substitution costs taking advantage of the social structuration of time is proposed for sequences sharing the same calendar: dynamic substitution costs can be derived from the series of transition matrices describing social sub-rhythms. An application to the question of the scheduling of work is proposed: using data from the 1985-86 and 1998-99 French time-use surveys, twelve types of workdays are uncovered. Their interpretability and quality, assessed visually through aggregate and individual tempograms, and box plots, seem satisfactory.
    Keywords: optimal matching
    Date: 2006–01
  2. By: Oksana Loginova (Department of Economics, University of Missouri-Columbia); X. Henry Wang (Department of Economics, University of Missouri-Columbia); Haibin Lu
    Abstract: AIn this paper we use mechanism design approach to find the optimal file-sharing mechanism in a peer-to-peer network. This mechanism improves upon existing incentive schemes. In particular, we show that peer-approved scheme is never optimal and service-quality scheme is optimal only under certain circumstances. Moreover, we find that the optimal mechanism can be implemented by a mixture of peer-approved and service-quality schemes.
    Keywords: peer-to-peer networks, mechanism design.
    JEL: D82 C7
    Date: 2006–07–19
  3. By: Paul Klemperer (Nuffield College, University of Oxford); Joseph Farrell (University of California)
    Abstract: Switching costs and network effects bind customers to vendors if products are incompatible, locking customers or even markets in to early choices. Lock-in hinders customers from changing suppliers in response to (predictable or unpredictable) changes in effciency, and gives vendors lucrative ex post market power-over the same buyer in the case of switching costs (or brand loyalty), or over others with network effects. Firms compete ex ante for this ex post power, using penetration pricing, introductory offers, and price wars. Such "competition for the market" or "life-cycle competition" can adequately replace ordinary compatible competition, and can even be fiercer than compatible competition by weakening differentiation. More often, however, incompatible competition not only involves direct effciency losses but also softens competition and magnifies incumbency advantages. With network effects, established firms have little incentive to offer better deals when buyers’ and complementors’ expectations hinge on non-effciency factors (especially history such as past market shares), and although competition between incompatible networks is initially unstable and sensitive to competitive offers and random events, it later "tips" to monopoly, after which entry is hard, often even too hard given incompatibility. And while switching costs can encourage small-scale entry, they discourage sellers from raiding one another’s existing customers, and s also discourage more aggressive entry. Because of these competitive effects, even ineffcient incompatible competition is often more profitable than compatible competition, especially for dominant rms with installed-base or expectational advantages. Thus firms probably seek incompatibility too often. We therefore favor thoughtfully pro-compatibility public policy.
    Date: 2006–07–01
  4. By: Martin Shubik (Cowles Foundation, Yale University)
    Abstract: A game theoretic approach to the theory of money and financial institution is given utilizing both the strategic and coalitional forms for describing the economy. The economy is first modeled as a strategic market game, then the strategic form is used to calculate several cooperative forms that differ from each other in their utilization of money and credit and their treatment of threats. It is shown that there are natural upper and lower bounds to the monetary needs of an economy, but even in the extreme structures the concept of "enough money" can be defined usefully, and for large economies the games obtained from the lower and upper bounds have cores that approach the same limit that is an efficient price system. The role of disequilibrium is then discussed.
    Keywords: Money, Prices, Core, Threat, Market game, Strategic market game
    JEL: C71 C72 E40
    Date: 2006–07

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