nep-net New Economics Papers
on Network Economics
Issue of 2004‒12‒20
eight papers chosen by
Yi-Nung Yang
Chung Yuan Christian University

  1. Competitive outcomes and endogenous coalition formation in an n-person game By Sun,N.; Trockel,W.; Yang,Z.
  2. Network Externalities, Demand Inertia and Dynamic Pricing in an Experimental Oligopoly Market By Ralph C Bayer; Mickey Chan
  3. Incompatibility, Product Attributes and Consumer Welfare: Evidence from ATMs By Christopher R. Knittel; Victor Stango
  4. System-Optimal Routing of Traffic Flows with User Constraints in Networks with Congestion By Jahn, Olaf; Möhring, Rolf; Schulz, Andreas; Stier Moses, Nicolás
  5. Regional Integration And North-South Technology Diffusion: The Case of Nafta By Maurice Schiff; Yanling Wang
  6. The Digitization of Word-of-Mouth: Promise and Challenges of Online Feedback By Dellarocas, Chrysanthos
  7. Better safe than sorry? Reliability policy in network industries By CPB
  8. Self-Configuration and Self-Administration of Wireless Grids By Agarwal, Ashish; Gupta, Amar; Norman, Douglas

  1. By: Sun,N.; Trockel,W.; Yang,Z. (University of Bielefeld, Institute of Mathematical Economics)
    Date: 2004
  2. By: Ralph C Bayer (University of Adelaide); Mickey Chan (University of Adelaide)
    Abstract: This paper analyses dynamic pricing in markets with network externalities. Network externalities imply demand inertia, because the size of a network increases the usefulness of the product for consumers. Since past sales increase current demand, firms have an incentive to set low introductory prices to be able to increase prices as their networks grow. However, in reality we observe decreasing prices. This could be due to other factors dominating the network e¤ects. We use an experimental duopoly market with demand inertia to isolate the effect of network externalities. We find that experimental price dynamics are rather consistent with real world observations than with theoretical predictions.
    Keywords: Network Externalities, Demand Inertia, Experiments, Oligopoly
    JEL: L13 C92
    Date: 2004–12–14
  3. By: Christopher R. Knittel; Victor Stango
    Abstract: Incompatibility in market with network effects reduces consumers' ability to "mix and match" components offered by different sellers, but can also spur changes in product attributes that might benefit consumers. In this paper, we estimate the effects of incompatibility on consumers in a classic hardware/software market: ATM cards and machines. We find that while ATM fees ceteris paribus reduce the network benefit from other banks' ATMs, a surge in ATM deployment accompanies the shift to surcharging. This is valuable to consumers and often completely offsets the harm from higher fees. The results suggest that policy discussions of incompatibility must consider not only its direct effect on consumers, but also its effect on product attributes.
    JEL: L1 L4 L8
    Date: 2004–12
  4. By: Jahn, Olaf; Möhring, Rolf; Schulz, Andreas; Stier Moses, Nicolás
    Abstract: The design of route-guidance systems faces a well-known dilemma. The approach that theoretically yields the system-optimal traffic pattern may discriminate against some users, for the sake of favoring others. Proposed alternate models, however, do not directly address the system perspective and may result in inferior performance. We propose a novel model and corresponding algorithms to resolve this dilemma. We present computational results on real-world instances and compare the new approach with the well-established traffic assignment model. The quintessence is that system-optimal routing of traffic flow with explicit integration of user constraints leads to a better performance than the user equilibrium while simultaneously guaranteeing a superior fairness compared to the pure system optimum.
    Keywords: Intelligent Transportation Systems, Route Guidance, Traffic Flow, System Optimum, User Equilibrium, Multicommodity Flow, Constrained Shortest Path,
    Date: 2004–12–10
  5. By: Maurice Schiff; Yanling Wang
    Abstract: The literature on regional integration agreements (RIAs) is vast and deals with political, economic and political economy issues. The literature on the economics of RIAs deals mostly with static effects, and concludes that these effects are in general ambiguous. So far, there has been no empirical analysis of the dynamic effects of RIAs based on their impact on technology diffusion from partner and non-partner countries. This paper is a first attempt in this direction. It examines the impact of NAFTA on total factor productivity (TFP) in Mexico through its impact on trade-related technology transfers from OECD countries. Trade-related technology diffusion is estimated with the use of a measure of trade-related foreign R&D. Foreign R&D is constructed based on industry-specific R&D in the OECD, OECD-Mexico trade patterns, and input-output relations in Mexico. We separate the OECD into two parts, Mexico’s NAFTA partners (US + Canada) and the rest of the OECD. We find, first, that Mexico’s trade with its NAFTA partners has a large and significant impact on Mexico’s TFP while trade with the rest of the OECD does not. This is likely to be due to the fact that Mexico not only benefits from the R&D content of the trade with its Northern neighbors but also benefits from direct contact and close exchanges of information, especially for sub-contracting firms which are more closely integrated in the US and Canada production networks than with the production networks of the more distant countries of the rest of the OECD. Second, we simulate the impact of NAFTA and find that it has led to a permanent increase in TFP in Mexico’s manufacturing sector of between 5.5%and 7.5% and to some convergence to the economies of the US and Canada.
    Date: 2004–12
  6. By: Dellarocas, Chrysanthos
    Abstract: Online feedback mechanisms harness the bi-directional communication capabilities of the Internet in order to engineer large-scale word-of-mouth networks. Best known so far as a technology for building trust and fostering cooperation in online marketplaces, such as eBay, these mechanisms are poised to have a much wider impact on organizations. Their growing popularity has potentially important implications for a wide range of management activities, such as brand building, customer acquisition and retention, product development, and quality assurance. This paper surveys our progress in understanding the new possibilities and challenges that these mechanisms represent. It discusses some important dimensions in which Internet-based feedback mechanisms differ from traditional word-of-mouth networks and surveys the most important issues related to their design, evaluation, and use. It provides an overview of relevant work in game theory and economics on the topic of reputation. It discusses how this body of work is being extended and combined with insights from computer science, management science, sociology, and psychology in order to take into consideration the special properties of online environments. Finally, it identifies opportunities that this new area presents for OR/MS research.
    Keywords: Online Feedback Mechanisms, Reputation Systems, E-commerce, Internet, Game Theory, Management Science, Operations Research,
    Date: 2004–11–23
  7. By: CPB
    Abstract: This report develops a roadmap for reliability policy in network industries. Based on economic theory, we analyse the relationship between reliability and various types of government policy: privatisation, liberalisation, regulation, unbundling, and 'commitment policy'. We let government policy depend on (1) the feasibility of competition between networks, (2) contractibility of reliability, and (3) the relation between profit maximisation and public interests. We test this roadmap on the basis of the empirical literature and case studies on electricity, natural gas, drinking water, wastewater, and railways.
    Keywords: reliability; network; networks; network industry; network industries; government policy; privatisation; privatization; liberalisation; liberalization; regulation; electricity; natural gas; water; railways
    JEL: L15 L22 L51 L33 L92 L L95 L98
    Date: 2004–12
  8. By: Agarwal, Ashish; Gupta, Amar; Norman, Douglas
    Abstract: A Wireless Grid is an augmentation of a wired grid that facilitates the exchange of information and the interaction between heterogeneous wireless devices. The ability of various grid layouts to handle interactions among the grid constituencies is contingent upon the efficient resolution of multiple technical challenges of the grid. These challenges arise due the added complexities of the wireless grid such as the limited power of the mobile devices, the limited bandwidth (including partial connectivity), and the increased dynamic nature of the interactions involved. This paper focuses on the configuration and administration issues of the wireless grid. The proposed grid topology and naming protocol can allow self-configuration and self-administration of various possible wireless grid layouts
    Keywords: Wireless Networks, Grid Computing, Mobile Computing, MANET, Sensor Networks,
    Date: 2004–12–10

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