nep-net New Economics Papers
on Network Economics
Issue of 2005‒04‒24
thirteen papers chosen by
Yi-Nung Yang
Chung Yuan Christian University

  1. Platform Competition with Endogenous Multihoming By Roberto Roson
  2. Pairwise-Stability and Nash Equilibria in Network Formation By Antoni Calvó-Armengol; Rahmi Ilkiliç
  3. Network Formation with Endogenous Decay By Francesco Feri
  4. Strategic Basins of Attraction, the Farsighted Core, and Network Formation Games By Frank H. Page, Jr.; Myrna H. Wooders
  5. Stochastic Stability in Network with Decay By Francesco Feri
  6. Is a Friend in Need a Friend Indeed? Inclusion and Exclusion in Mutual Insurance Networks in Southern Ghana By Markus Goldstein; Alain de Janvry; Elisabeth Sadoulet
  7. Cost-Reducing Alliances and Local Spillovers By Frédéric Deroian
  8. The Core of Directed Network Problems with Quotas By Somdeb Lahiri
  9. A Characterization of Stochastically Stable Networks By Vincent Vannetelbosch; Olivier Tercieux
  10. R&D Networks Among Unionized Firms By Vincent Vannetelbosch; Ana Mauleon; José Sempere-Monerris
  11. Product market competition and economic performance in the Netherlands By Maria Maher; Michael Wise
  12. Enhancing Brazil's regulatory framework for network industries: the case of electricity, oil and gas, and water and sanitation By Edmar Almeida; Nanno Mulder

  1. By: Roberto Roson (Università Ca’ Foscari di Venezia)
    Abstract: A model of two-sided market (for credit cards) is introduced and discussed. In this model, agents can join none, one, or more than one platform (multihoming), depending on access prices and the choices made by agents on the opposite market side. Although emerging multihoming patterns are, clearly, one aspect of equilibrium in a two-sided market, this issue has not yet been thoroughly addressed in the literature. This paper provides a general theoretical framework, in which homing partitions are conceived as one aspect of market equilibrium, rather than being set ex-ante, through ad-hoc assumptions. The emergence of a specific equilibrium partition is a consequence of: (1) the structure of costs and benefits, (2) the degree and type of heterogeneity among agents, (3) the intensity of platform competition.
    Keywords: Two-sided markets, Network externalities, Standards, Platforms, Multihoming
    JEL: D85 L10 L15 L89
    Date: 2005–01
  2. By: Antoni Calvó-Armengol (Universitat Autònoma de Barcelona, Université de Toulouse Sciences Sociales and CEPR); Rahmi Ilkiliç (Universitat Autònoma de Barcelona)
    Abstract: Suppose that individual payoffs depend on the network connecting them. Consider the following simultaneous move game of network formation: players announce independently the links they wish to form, and links are formed only under mutual consent. We provide necessary and sufficient conditions on the network link marginal payoffs such that the set of pairwise stable, pairwise-Nash and proper equilibrium networks coincide, where pairwise stable networks are robust to one-link deviations, while pairwise-Nash networks are robust to one-link creation but multi-link severance. Under these conditions, proper equilibria in pure strategies are fully characterized by one-link deviation checks.
    Keywords: Network formation, Pairwise-stability, Proper equilibrium
    JEL: C62 C72 D85 L14
    Date: 2005–03
  3. By: Francesco Feri (Ca’ Foscari University)
    Abstract: This paper considers a communication network characterized by an endogenous architecture and an imperfect transmission of information as in Bala and Goyal (2000). We propose a similar network's model with the difference that it is characterized by an endogenous rate of information decay. Endogenous decay is modelled as dependent on the result of a coordination game, played by every pair of directly linked agents and characterized by 2 equilibria: one efficient and the other risk dominant. Differently from other models, where the network represents only a channel to obtain information or to play a game, in our paper the network has an intrinsic value that depends on the chosen action in the coordination game by each participant. Moreover the endogenous network structure affects the play in the coordination game as well as the latter affects the network structure. The model has a multiplicity of equilibria and we produce a full characterization of those are stochastically stable. For sufficiently low link costs we find that in stochastically stable states network structure is ever efficient; individuals can be coordinated on efficient as well as on risk dominant action depending on the decay difference among the two equilibria in the single coordination game. For high link costs stochastically stable states can display networks that are not efficient; individuals are never coordinated on the efficient action.
    Keywords: Network, Decay, Strategical interaction
    JEL: A14 D20 J00
    Date: 2005–03
  4. By: Frank H. Page, Jr. (University of Alabama); Myrna H. Wooders (Vanderbilt University and University of Warwick)
    Abstract: We make four main contributions to the theory of network formation. (1) The problem of network formation with farsighted agents can be formulated as an abstract network formation game. (2) In any farsighted network formation game the feasible set of networks contains a unique, finite, disjoint collection of nonempty subsets having the property that each subset forms a strategic basin of attraction. These basins of attraction contain all the networks that are likely to emerge and persist if individuals behave farsightedly in playing the network formation game. (3) A von Neumann Morgenstern stable set of the farsighted network formation game is constructed by selecting one network from each basin of attraction. We refer to any such von Neumann-Morgenstern stable set as a farsighted basis. (4) The core of the farsighted network formation game is constructed by selecting one network from each basin of attraction containing a single network. We call this notion of the core, the farsighted core. We conclude that the farsighted core is nonempty if and only if there exists at least one farsighted basin of attraction containing a single network. To relate our three equilibrium and stability notions (basins of attraction, farsighted basis, and farsighted core) to recent work by Jackson and Wolinsky (1996), we define a notion of pairwise stability similar to the Jackson-Wolinsky notion and we show that the farsighted core is contained in the set of pairwise stable networks. Finally, we introduce, via an example, competitive contracting networks and highlight how the analysis of these networks requires the new features of our network formation model.
    Keywords: Basins of attraction, Network formation, Supernetworks, Farsighted core, Nash networks
    JEL: A14 D20 J00
    Date: 2005–03
  5. By: Francesco Feri (Ca’ Foscari University)
    Abstract: This paper considers a simple communication network characterized by an endogenous architecture and an imperfect transmission of information. We analyze the process of network formation in a dynamic framework where self – interested individuals can form or delete links and, occasionally, are doing mistakes. Then, using stochastic stability, we identify which network structures the formation process will converge to.
    Keywords: Network, Decay, Strategical interaction
    JEL: A14 D20 J00
    Date: 2005–03
  6. By: Markus Goldstein (none); Alain de Janvry (University of California, Berkeley); Elisabeth Sadoulet (University of California, Berkeley)
    Keywords: household models, insurance, risk, social aspects, villages,
    Date: 2003–06–01
  7. By: Frédéric Deroian (F.O.R.U.M Université Paris X)
    Abstract: Firms raise cost-reducing alliances before competing with each other, but cannot fully internalize the shared knowledge. When spillovers are local and transit through the network of alliances, stable architectures with a moderate level of asymmetry are identified.
    Keywords: Oligopoly, Cost-Reducing alliances, Local spillovers, Network stability
    JEL: C70 L13 L20
    Date: 2005–01
  8. By: Somdeb Lahiri (University of the Witwatersrand at Johannesburg)
    Abstract: This paper proves the existence of non-empty cores for directed network problems with quotas and for those combinatorial allocation problems which permit only exclusive allocations.
    Keywords: Network problems, Quotas
    JEL: C71
    Date: 2005–02
  9. By: Vincent Vannetelbosch (CORE, Université Catholique de Louvain); Olivier Tercieux (CentER, Tilburg University)
    Abstract: Jackson and Watts [J. of Econ. Theory 71 (2002), 44-74] have examined the dynamic formation and stochastic evolution of networks. We provide a refinement of pairwise stability, p-pairwise stability, which allows us to characterize the stochastically stable networks without requiring the "tree construction" and the computation of resistance that may be quite complex. When a 1/2-pairwise stable network exists, it is unique and it coincides with the unique stochastically stable network. To solve the inexistence problem of p-pairwise stable networks, we define its set-valued extension with the notion of p-pairwise stable set. The 1/2-pairwise stable set exists and is unique. Any stochastically stable network is included in the 1/2-pairwise stable set. Thus, any network outside the 1/2-pairwise stable set must be considered as a nonrobust network. We also show that the 1/2-pairwise stable set can contain no pairwise stable network and we provide examples where a set of networks is more "stable" than a pairwise stable network.
    Keywords: Network formation, Pairwise stability, Stochastic stability
    JEL: C70 D20
    Date: 2005–04
  10. By: Vincent Vannetelbosch (FNRS and CORE, Université Catholique de Louvain); Ana Mauleon (FNRS and CEREC, Facultés Universitaires Saint-Louis); José Sempere-Monerris (University of Valencia)
    Abstract: We develop a model of strategic networks in order to analyze how trade unions will affect the stability and efficiency of R&D collaboration networks in an oligopolistic industry with three firms. Whenever firms settle wages, the complete network is always pairwise stable and the partially connected network is stable if and only if spillovers are large enough. If spillovers are small, the complete network is the efficient network; otherwise, the efficient network is the partially connected network. Thus, a conflict between stability and efficiency may occur: efficient networks are pairwise stable, but the reverse is not true. Strong stability even reinforces this conflict. However, once unions settle wages such conflict disappears: the complete network is the unique pairwise and strongly stable network and is the efficient network whatever the spillovers.
    Keywords: Networks, R&D collaboration, Oligopoly, Unions
    JEL: C70 L13 L20 J50 J52
    Date: 2005–04
  11. By: Maria Maher; Michael Wise
    Abstract: This paper assesses what role product market competition and reforms may have played in the performance of the Dutch economy over the past decade, and discusses what further product market reforms might contribute to enhancing growth. In general, competitive pressures appear to be relatively strong in the Netherlands, particularly in the traded goods sector. Competition in product markets has been strengthened through the creation of a competition authority (NMa) and the Competition, Deregulation and Legislative Quality project (MDW). A planned reduction in the administrative burden will also help to strengthen competition, by reducing barriers to business start-ups and the expansion of small businesses, as well as lowering business costs. However, competitive pressures and productivity growth are weaker in the Dutch services sector. Planning restrictions are inhibiting competition and productivity growth in the retail sector and there is considerable scope to eliminate practices that restrict competition in professional services, even though both are relatively liberalised in the Netherlands. Reforms in electricity, gas and telecoms are recent and market power on the part of incumbent firms remains a concern. Competitive pressures in these industries could be increased by enhancing the powers of the regulators and eliminating barriers to entry. <p> Concurrence sur les marchés de produits et performances économiques aux Pays-Bas <p> Ce document évalue le rôle que la concurrence sur les marchés de produits et les réformes ont pu jouer dans les performances de l’économie néerlandaise cette dernière décennie et débat sur l’action qui pourrait être menée pour améliorer la croissance. D’une façon générale, les pressions concurrentielles paraissent relativement fortes aux Pays-Bas en particulier dans les secteurs des biens échangés. La concurrence sur les marchés de produits a été renforcée grâce à la mise en place d’une autorité de la concurrence (la NMa) et au projet "Concurrence, déréglementation et qualité de la réglementation" (MDW). L’allégement prévu des charges administratives contribuera également à renforcer la concurrence en réduisant les obstacles à la création d’entreprises et à l’expansion des petites entreprises, tout en diminuant les coûts des activités industrielles ou commerciales. Toutefois, la concurrence et la productivité du travail sont plus faibles dans le secteur des services. Les règles d’urbanisme entravent la concurrence et la croissance de la productivité dans le commerce de détail et de vastes possibilités s’offrent d’éliminer les pratiques qui restreignent la concurrence dans les services professionnels, même si ces activités sont relativement libéralisées aux Pays-Bas. Les réformes dans les secteurs de l’électricité, du gaz et des télécommunications sont récentes et le pouvoir de marché des opérateurs historiques demeure problématique. La concurrence dans ces secteurs pourrait être intensifier, en augmentant les prérogatives des autorités de régulation et en éliminant les barrières à l’entrée.
    Keywords: Netherlands; market structure; competition; productivity and growth; antitrust law; regulatory policies; network industries
    JEL: K21 K23 L11 L16 L40 L43 O51
    Date: 2005–03–31
  12. By: Edmar Almeida; Nanno Mulder
    Abstract: This paper assesses Brazil’s regulatory framework and agencies for several network industries (electricity, oil and gas, and water and sanitation). Private investment can be encouraged by tackling regulatory uncertainty in many areas. To this end, recent initiatives include a new regulatory model for the electricity sector, and new draft legislation on the role and structure of the regulatory agencies (currently in Congress). The overall approach to regulatory reform in network industries, particularly in electricity, is well thought out but the risk of regulatory failure should not be underestimated. Implementation will be the ultimate test of reform in this area. In natural gas, the dominance of Petrobras, the national oil company, throughout the industry has often been perceived as an obstacle to its development. Private investment in water and sanitation is constrained by a lack of clarity over the assignment of regulatory powers across different levels of government. These reforms are consistent with the government’s agenda for growth, focusing on meeting the challenge of improving the business environment. This Working Paper relates to the 2005 OECD Economic Survey of Brazil ( <p> Améliorer le cadre réglementaire des industries de réseau au Brésil: le cas de l'électricité, du pétrole et du gaz, et de l'eau et de l'assainissement <p> Cet article évalue le cadre réglementaire ainsi que les agences régulatrices pour plusieurs industries de réseau (électricité, pétrole et gaz, eau et assainissement). L’investissement privé pourrait être encouragé en réduisant l’incertitude réglementaire dans plusieurs domaines. A ce propos, des initiatives récentes incluent un nouveau modèle réglementaire pour le secteur de l’électricité et un projet de loi sur le rôle et la structure des agences régulatrices (actuellement au Congrès). L’approche générale retenue en ce qui concerne la réforme de la réglementation dans les industries de réseau, notamment dans le secteur de l’électricité, est judicieuse, mais le risque de défaillance de la réglementation ne doit pas être sous-estimé. C’est au stade de sa mise en œuvre que la réforme dans ce domaine sera mise à l’épreuve. Pour ce qui est du gaz naturel, la position dominante de la société pétrolière nationale Petrobras dans l’ensemble du secteur a souvent été perçue comme un obstacle au développement de celui-ci. L’investissement privé dans les secteurs de l’eau et de l’assainissement se heurte à un manque de clarté dans la répartition des pouvoirs de réglementation entre les différents niveaux d’administration. Ces réformes se situent dans la lignée du programme de croissance du gouvernement, en mettant l’accent sur l’amélioration de l’environnement des entreprises. Ce document de travail se rapporte à l'Étude économique de l'OCDE du Brésil, 2005 (
    Keywords: Brazil; regulation; regulatory agencies; economics of regulation; electricity; oil; gas; pipelines; water utilities; sanitation; Government Policy (Energy)
    JEL: K23 L51 L94 L95 O54 Q48
    Date: 2005–04–08
    Abstract: The problem of opportunity discovery is central in the entrepreneurial activity. Cognitive limitations determine the search and the analysis of information, and as a consequence constrain the identification for opportunities. Moreover, typical personal characteristics – locus of control, need for independence, and need for achievement – suggest that entrepreneurs would take a central position in their stakeholder environments and as a consequence fail to adapt the complexity of stakeholder relationships in their entrepreneurial activity. We approach this problem from a network perspective on stakeholder management. We propose a heuristic of stakeholder analysis, which requires two mappings of the entrepreneurial constituents. The first mapping focuses on current interactions between the entrepreneur and his/her stakeholders, while the second focuses on a specific issue and the stakeholders that constitute it. In effect, such a stakeholder analysis requires entrepreneurs to use the complexity of stakeholder relations in order to breach their cognitive limitations and thus facilitate them in the discovery of new opportunities. This has clear implications for the ethics and the activity of entrepreneurs, as we will argue.
    Keywords: business ethics, entrepreneurship, network perspective, opportunity identification, stakeholder management
    Date: 2005–02

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