nep-net New Economics Papers
on Network Economics
Issue of 2005‒02‒13
eight papers chosen by
Yi-Nung Yang
Chung Yuan Christian University

  1. Platform Competition in Telecommunications By Church, Jeffrey; Gandal, Neil
  2. Telecommunications Policies: Determinants and Impact By Gual, Jordi; Trillas, Francesco
  3. Price Competition in a Differentiated Products Duopoly Under Network Effects By Griva, Krina; Vettas, Nikolaos
  4. Speed and Quality of Collective Decision-Making II: Incentives for Information Provision By Grüner, Hans Peter; Schulte, Elisabeth
  5. Platform Ownership By Nocke, Volker; Peitz, Martin; Stahl, Konrad O.
  6. How Do Differing Standards Increase Trade Costs? The Case of Pallets By Gael Raballand; Enrique Aldaz-Carroll
  7. "Linguistic Distance" as a Determinant of Bilateral Trade By William K. Hutchinson
  8. Why is Economics not a Complex Systems Science? By Prof John Foster

  1. By: Church, Jeffrey; Gandal, Neil
    Abstract: In this Paper we consider the economics of platform competition in telecommunications. Platform competition occurs when different, sometimes incompatible, technologies compete to provide telecommunications services to end-users. Battles between competing technologies have been an important feature of telecommunications in the last twenty or so years. Examples of platform competition in telecommunications include wireless vs. wireline networks, competing wireless options, such as satellite vs. cellular, and, within cellular, different digital standards.
    Keywords: platform competition; telecommunications
    JEL: L13
    Date: 2004–10
  2. By: Gual, Jordi; Trillas, Francesco
    Abstract: This Paper presents new data, in the form of several indices, on liberalization policies and the independence of regulators for a cross section of countries. These indices are combined with a comprehensive set of performance, institutional and political data to analyse both the determinants and the impact of telecommunications policies. We find that liberalization policies are negatively associated with the degree to which countries have an interventionist tradition, but not with the partisan ideology of reforming governments. We also find that countries with weak protection of investors’ quasi-rents by other means, and countries with a larger incumbent, are more prone to create (at least legally) independent regulatory agencies. There is preliminary evidence with this dataset that, when the endogeneity of policies is taken into account, the creation of independent regulatory agencies and pro-entry policies have a significant positive effect on network penetration and a negative effect on productivity.
    Keywords: institutions; liberalization; telecommunications
    JEL: F21 L32 L96
    Date: 2004–08
  3. By: Griva, Krina; Vettas, Nikolaos
    Abstract: We examine price competition under product-specific network effects, in a duopoly where the products are differentiated horizontally and vertically. When consumers' expectations are not affected by prices, firms may share the market equally, or one firm (possibly the low-quality one) may capture the entire market. When product qualities are different, we may also have interior asymmetric equilibria. With expectations affected by prices, firms' competition becomes more intense and the high quality firm captures a larger market share.
    Keywords: network effects; price competition; product differentiation; product variety; quality
    JEL: D43 L13
    Date: 2004–08
  4. By: Grüner, Hans Peter; Schulte, Elisabeth
    Abstract: This Paper provides a game theoretic extension of Radner's (1993) model of hierarchical information aggregation. It studies the role of the hierarchy design for the speed and quality of a collective decision process. The hierarchy is described as a programmed network of agents. The programme describes how information is processed within the network. The network of P identical managers has to aggregate information in the form of a set of n data items in order to make an informed decision. Each manager benefits from reaching an accurate decision but suffers from an individual cost of effort, which has to be provided in order to understand the information contained in a data item properly. We find that decentralized information processing increases incentives for information provision. There may be boundaries on the appropriate extend of decentralization, however. We also compare three different hierarchy designs: two balanced hierarchies and the fastest (skip-level) hierarchy, proposed by Radner. Skip-level reporting outperforms balanced hierarchies in terms of decision speed and in terms of decision quality.
    Keywords: hierarchies; incentives for information provision; information processing
    JEL: D23 D70 D83 L22 P51
    Date: 2004–04
  5. By: Nocke, Volker; Peitz, Martin; Stahl, Konrad O.
    Abstract: We develop a general theoretical framework of trade on a platform on which buyers and sellers interact. The platform may be owned by a single large, or many small independent or vertically integrated intermediaries. There also may be free entry into the market for platform slots, or platform owners my form a club that restricts entry. We provide a positive and normative analysis of the impact of platform ownership structure on platform size. The strength of network effects is important in the ranking of ownership structures by induced equilibrium platform size and welfare. We develop an intuitive taxonomy of these towards developing our results. We show that while vertical integration may be welfare-enhancing if network effects are weak, monopoly platform ownership is socially preferred if they are strong. These are also the ownership structures likely to emerge.
    Keywords: intermediation; network effects; product diversity; two-sided markets
    JEL: D40 L10
    Date: 2004–10
  6. By: Gael Raballand; Enrique Aldaz-Carroll
    Abstract: The pallet is a platform used for storing, handling, and transporting products. There are hundreds of different pallet sizes around the world. Raballand and Aldaz-Carroll examine the case of pallets to illustrate the impact of multiplicity of standards on trade costs. They select this case because pallets are used all around the world, pallet standards are not too sophisticated, and data on the impact of pallet standards are to some extent available. The authors examine why there are so many different pallet sizes, the associated trade costs, and the reasons why countries have not harmonized pallet sizes to eliminate such costs. They then present options for exporters to mitigate the adverse effects of standards multiplicity while complying with destination markets’ standard requirements. The range of options is limited in the case of exporters from less developed countries because of the lack of rental and exchange pallet markets. To mitigate the costs of this multiplicity of standards, the World Bank’s strategy should be divided in two directions: to develop awareness of costs related to the multiplicity of standards and to support actively harmonization at the global level (within International Organization for Standardization) and at the regional level (within regional cooperation agreements). This paper—a product of the International Trade Department, Poverty Reduction and Economic Management Network—is part of a larger effort in the network to analyze the impact of standards on trade.
    Keywords: International Economics; Globalization
    Date: 2005–02–09
  7. By: William K. Hutchinson (Department of Economics, Vanderbilt University)
    Abstract: We introduce a measure of language difficulty called "linguistic distance" into a modified gravity model to determine whether the fact that a language is further away from English affects the level of trade. Our sample of 36 non-English speaking countries includes Japan and South Korea, which we argue are special cases due to World War II, the Korean War, and subsequent close political and economic ties with the United States. Presence of a stock of immigrants in the home country has been shown to enhance trade, both exports and imports, with the country of origin. Controlling for network and information attributes provided by the presence of a stock of immigrants, the special relationship with Japan and Korea, and the standard gravity model variables, we find that the further a country¼s primary language is from English, the lower trade will be between the United States and that country. These results hold for aggregate exports and imports as well as for exports and imports of consumer manufactures and producer manufactures.
    Keywords: Trade, information costs, immigration, gravity
    JEL: F1 J1
    Date: 2001–12
  8. By: Prof John Foster (School of Economics, The University of Queensland)
    Abstract: Economics is viewed as a discipline that is mainly concerned with 'simplistic' theorizing, centered upon constrained optimization. As such, it is ahistorical and outcome focused, ie, it does not deal with economic processes. It is argued that all parts of the economy are inhabited by complex adaptive systems operating in complicated historical contexts and that this should be acknowledged at the core of economic analysis. It is explained how economics changes in fundamental ways when such a perspective is adopted, even if the presumption that people will try to optimize subject to constraints is retained. This is illustrated through discussion of how the production function construct has been used to provide an abstract representation of the network structures that exist in complex adaptive systems such as firms. It is argued that this has led to a serious understatement of the importance of rule systems that govern the connections in productive networks. The macroeconomics of John Maynard Keynes is then revisited to provide an example of how some economists in earlier times were able to provide powerful economic analysis that was based on intuitions that we can now classify as belonging to complex systems perspective on the economy. Throughout the paper, the reasons why a complex systems perspective did not develop in the mainstream of economics in the 20th Century, despite the massive popularity of an economist like Keynes, are discussed and this is returned to in the concluding section where the prospect of paradigmatic change occurring in the future is evaluated.
    Date: 2004

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