nep-net New Economics Papers
on Network Economics
Issue of 2004‒12‒12
twelve papers chosen by
Yi-Nung Yang
Chung Yuan Christian University

  1. Spatial Competition in the Network Television Industry By Ronald Goettler; Ron Shachar
  2. Two-Sided Markets and Electronic Intermediaries By Bruno Jullien
  3. Learning of SMEs in networks: the role of absorptive capacity By Waalkens, J.; Jorna, R.; Postma, T.
  4. Skewed Pricing in Two-Sided Markets: An IO approach By Wilko Bolt; Alexander F. Tieman
  5. The impact of social networks on consumer's value attitude systems and store loyalty By Hoffmann, A.O.I.; Teerling, M.L.
  6. Network Formation in Symmetric 2x2 Games By Berninghaus, Siegfried K.; Vogt, Bodo
  7. Liberalisation of network industries : is electricity an exception to the rule? By Coppens,F.; Vivet,D.
  8. Interbanking networks : towards a small financial world ? By Sébastien Vivier-Lirimont
  9. Informal Insurance in Social Networks By Francis Bloch (GREQAM and Universite de la Mediterranee), Garance Genicot (Georgetown University, and Debraj Ray (New York University and Instituto de Analisis Economico (CSIC))
  10. Networks of Relations By Spagnolo, Giancarlo; Lippert, Steffen
  11. Electricity Generation with Looped Transmission Networks: Bidding to an ISO By Xinmin Hu; Daniel Ralph; Eric K. Ralph; Peter Bardsley; Michael C. Ferris
  12. Do workers really benefit from their social networks ? By François Fontaine

  1. By: Ronald Goettler; Ron Shachar
    Abstract: We present an empirical study of spatial competition and a methodology to estimate demand for products with unobservable characteristics. Using panel data, we estimate a discrete choice model with latent product attributes and unobserved heterogenous consumer preferences. Our application of the methodology to the network television industry yields estimates that are consistent with experts' views. Given our estimates, we compute Nash equilibria of a product location game, and find that firms' observed strategies (such as the degree of product differentiation) are generally optimal. Discrepancies between actual and optimal strategies reflect the networks' adherence to "rules of thumb," and possibly, bounded rationality behavior.
  2. By: Bruno Jullien
    Abstract: The object of this paper is to discuss on-line intermediation from the perspective of two-sided markets. It builds a simple model of the intermediation activity when trading partners are involved in a commercial relationship and uses it to illustrate some of the results that emerge in the two-sided market literature, as well as to discuss some new aspects. The first part concentrates on a monopoly intermediation service and discusses both efficient pricing and monopoly pricing. The second part discusses the nature of competition between intermediaries, addressing issues as competitive crosssubsidies, multi-homing or tying.
    Keywords: intermediation, two-sided market, network, cross-subsidy, tying
    JEL: D40 D85 L12 L13 L14 L40
    Date: 2004
  3. By: Waalkens, J.; Jorna, R.; Postma, T. (Groningen University)
    Abstract: This paper deals with innovation and the role of absorptive capacity in SMEs. Building on the seminal paper of Cohen and Levinthal (1990) in which R&D-expenditure is taken as the main indicator for absorptive capacity, this paper discusses four alternative indicators, i.e. Internal Knowledge Base, (Formal) Cooperation, External Knowledge Base and Internal Cooperation. A conceptual model and hypotheses are developed in which these indicators are related to each other. Their possible explanatory power towards innovation output is specified.
    Date: 2004
  4. By: Wilko Bolt; Alexander F. Tieman
    Abstract: In two-sided markets, one widely observes skewed pricing strategies, in which the price mark-up is much higher on one side of the market than the other. Using a simple model of two-sided markets, we show that, under constant elasticity of demand, skewed pricing is indeed pro?t maximizing. The most elastic side of the market is used to generate maximum demand by providing it with platform services at the lowest possible price. Through the positive network externality, full participation of the high-elasticity, lowprice side of the market increases market participation of the other side. As this side is less price elastic, the platform is able to extract high prices. Our skewed pricing result also carries over when analyzing the socially optimal prices. Interestingly, this leads to below-marginal cost pricing in the social optimum. We motivate the analysis by looking at the Dutch debit card system.
    Keywords: Two-sided markets; skewed pricing; corner solution; social optimum.
    JEL: G21 L10 L41
    Date: 2004–10
  5. By: Hoffmann, A.O.I.; Teerling, M.L. (Groningen University)
    Abstract: We are all influenced by the people whom surround us, i.e. our social network. So actually, to what extent do these social networks influence a consumers shopping behavior? Moreover are there differences in the strength of influence and to what level of consumers values does the influence of a social network stretch? We study the influence of two concepts of the social network, namely network expectations and the importance of so called hubs on the consumer value attitude system and store loyalty. The results show stronger global and domain specific values for hubs as well as a strong influence of the network expectations on the evaluation of store attributes as well as on store loyalty.
    Date: 2004
  6. By: Berninghaus, Siegfried K. (Universität Karlsruhe); Vogt, Bodo (Universität Magdeburg)
    Abstract: A population of players is considered in which each agent can select her neighbors in order to play a symmetric 2x2 game with each of them. The result of the simultaneous neighborhood choice of each agent is a network on the population from. We analyze all types of 2x2 games and show how the payoff structure in the 2x2 games affects the resulting equilibrium networks. Depending on the size of the communication costs the resulting equilibrium networks may be characterized by bipartite graphs if the coordination game is of the Hawk/Dove type while networks show a tendency to build complete or disconnected graphs if agents play a pure coordination game. Furthermore, for each 2x2 game we determine the equilibrium strategy distribution which is realized in the equilibrium networks.
    Date: 2004–11–25
  7. By: Coppens,F.; Vivet,D. (Nationale Bank van Belgie)
    Date: 2004
  8. By: Sébastien Vivier-Lirimont (EUREQua)
    Abstract: In a standard stylised frame derived from Diamond Dybvig, banks operate within a network of debt contracts. Working in network enables banks to decentralize a Pareto Optimal allocation while it is impossible if banks operate in isolation. However, this outcome depends on the architecture of the network which itself depends on network participant number and on the cost structure. In a general frame with no cost, two network structures only decentralize first best outcome. The first structure highlights a Small World property as banks must be bound together at a network distance that equals at maximum 2. The second structure exhibits a strict regular topology. The rise in the number of competing banks leads to a more than proportional rise in interbank lending operations. In a frame with positive cost, we prove a single architecture both minimizes aggregate costs and decentralizes first best outcome. However, this topology has little chance to emerge as it exhibits unbalanced cost sharing among palyers. Aggregate cost efficiency is indeed not compatible with individual cost minimization.
    Keywords: Network, bank, debt, financial stability
    JEL: G21 F34 C79
    Date: 2004–05
  9. By: Francis Bloch (GREQAM and Universite de la Mediterranee), Garance Genicot (Georgetown University, and Debraj Ray (New York University and Instituto de Analisis Economico (CSIC)) (Department of Economics, Georgetown University)
    Abstract: This paper studies informal insurance across networks of individuals. Two characteristics are fundamental to the model developed here: First, informal insurance is a bilateral activity, and rarely involves explicit arrangements across several people. Second, insurance is a social activity, and transfers are often based on norms. In the model studied here, only directly linked agents make transfers to each other, although they are aware of the (aggregate) transfers each makes to third parties. An insurance scheme for the network as a whole is an equilibrium of several interacting bilateral arrangements. This model serves as a starting point for investigating stable insurance networks, in which all agents actually have private incentives to abide by the ongoing insurance arrangement. The resulting analysis shows that network links have two distinct and possibly conflicting roles to play. First, they act as conduits for transfers, and in this way this make better insurance possible. Second, they act as conduits for information, and in this sense they affect the severity of punishments for noncompliance with the scheme. A principal task of this paper is to describe how these two forces interact, and in the process characterize stable networks. The concept of "sparse" networks, in which the removal of certain links increases the number of network components, is crucial in this characterization. As corollaries, we found that both "thickly connected" networks(such as the complete graph) and "thinly connected" networks (such as trees) are likely to be stable, whereas intermediate degrees of connectedness jeopardize stability. Finally, we study in more detail the notion of networks as conduits for transfers, by simply assuming a punishment structure (such as autarky) that is independent of the precise architecture of the tree. This allows us to isolate a bottleneck effect: the presence of certain key agents who act as bridges for several transfers. Bottlenecks are captured well in a feature of trees that we call decomposability, and we show that all decomposable networks have the same stability properties and that these are the least likely to be stable. Classification-JEL Codes: D85, D80, 012, Z13
    Keywords: social networks, informal insurance
  10. By: Spagnolo, Giancarlo (Stockholm School of Economics, Consip Spa, and CEPR.); Lippert, Steffen (University of Toulouse 1 and University of Mannheim)
    Abstract: We model networks of relational (or implicit)contracts, exploring how sanctioning power and equilibrium conditions change under different network configurations and information transmission technologies. In our model, relations are the links, and the value of the network lies in its ability to enforce cooperative agreements that could not be sustained if agents had no access to other network members’ sanctioning power and information. We identify conditions for network stability and in-network information transmission as well as conditions under which stable subnetworks inhibit more valuable larger networks.
    Keywords: Networks; Relational Contracts; Peering; Indirect Multimarket Contact; Information transmission; Social Capital.
    JEL: D23 D43 L13 L29 O17
    Date: 2004–11–27
  11. By: Xinmin Hu; Daniel Ralph; Eric K. Ralph; Peter Bardsley; Michael C. Ferris
    Abstract: This paper uses a bi-level game to model markets for delivery of electrical power on looped transmission networks. It analyzes the effectiveness of an independent system operator (ISO) when generators (and, in some cases, retailers) with market power bid a single parameter of their linear supply (demand) functions to the ISO. The ISO, taking these bids at face value, maximizes welfare subject to transmission constraints. We find that equilibrium outcomes are sensitive to firms’ strategy spaces: 1. In the presence of transmission congestion and loop flows, supply function equilibria (SFE) are not bounded from above by Cournot equilibria, so Cournot outcomes may be more effcient than SFE, a difference that can be accentuated by increasing the number of rivals at a given node; 2. Allocation of transmission rights to generators can reduce effciency; and 3. Countervailing power on the part of buyers can lower effciency.
    Keywords: electricity market, nodal pricing, locational marginal pricing, supply function equilibria, bilevel game, bilevel program
    JEL: C61 C63 D43 L51 L94
    Date: 2004–11
  12. By: François Fontaine (EUREQua)
    Abstract: This paper provides a simple matching model in which unemployed workers and employers in large firms can be matched together through social networks or through more "formal" methods of search. We show that networks do not necessarily add new externalities and that some results previously obtained in the literature are questionable. Nevertheless, social networks can, in some case, substitute for labor market and this crowding-out effect may be socially costly. We show that an increase in the number of workers embedded in the social networks can increase the unemployment rate and decrease workers welfare. Since it is mostly the firms which benefit from larger social networks, transfers from the firms to the workers are necessary to make larger access to the social network efficient.
    Keywords: Insider trading, stock prices, correlated signals, Kyle model
    JEL: G14 D82
    Date: 2004–09

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