nep-net New Economics Papers
on Network Economics
Issue of 2005‒10‒29
nine papers chosen by
Yi-Nung Yang
Chung Yuan Christian University

  1. An overview of Stackelberg pricing in networks By Hoesel,Stan,van
  2. Platform Ownership By Volker Nocke; Martin Peitz; Konrad Stahl
  3. Social Networking and Individual Outcomes Beyond the Mean Field Case By Yannis M. Ioannides; Adriaan R. Soetevent
  4. File-Sharing, Sampling, and Music Distribution By Martin Peitz; Patrick Waelbroeck
  5. Herding with and without Payoff Externalities - An Internet Experiment By Mathias Drehmann; Jörg Oechssler; Andreas Roider
  6. Strategic Policy Competition with Public Infrastructure By Richard Nahuis; Paul J.G. Tang
  7. Weak Monotonicity and Bayes-Nash Incentive Compatibility By Müller,Rudolf; Perea,Andrés; Wolf,Sascha
  8. Integrating Industrial Organization and International Business to Explain the Cross-National Domestic Airline Merger Phenomenon By Joseph A. Clougherty
  9. Skilled Emigration, Business Networks and Foreign Direct Investment By Kugler, Maurice; Rapoport, Hillel

  1. By: Hoesel,Stan,van (METEOR)
    Abstract: The Stackelberg pricing problem has two levels of decision making: tariff setting by an operator, and then selection of the cheapest alternative by customers. In the network version, an operator determines tariffs on a subset of the arcs that he owns. Customers, who wish to connect two vertices with a path of a certain capacity, select the cheapest path. The revenue for the operator is determined by the tariff and the amount of usage of his arcs. The most natural model for the problem is a (bi-linear) bilevel program, where the upper level problem is the pricing problem of the operator, and the lower level problem is a shortest path problem for each of the customers. This manuscript contains a compilation of theoretical and algorithmic results on the Stackelberg pricing problem. The description of the theory and algorithms is generally informal and intuitive. We redefine the underlying network of the problem, to obtain a compact representation. Then, we describe a basic branch-and-bound enumeration procedure. Both concepts are used for complexity issues and the development of algorithms: establishing NP-hardness, approximability, and polynomially solvable cases, and an efficient exact branch-and-bound algorithm.
    Keywords: mathematical applications;
    Date: 2005
  2. By: Volker Nocke (Department of Economics, University of Pennsylvania, 3718 Locust Walk, Philadelphia, PA 19104, USA); Martin Peitz (Department of Economics, University of Mannheim, D-68131 Mannheim, Germany); Konrad Stahl (Department of Economics, University of Mannheim, D-68131 Mannheim, Germany)
    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. 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 platform size and welfare. 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: Two-Sided Markets, Network Effects, Intermediation, Product Diversity
    JEL: L10 D40
    Date: 2004–07
  3. By: Yannis M. Ioannides; Adriaan R. Soetevent
    Abstract: This paper examines social interactions when social networking is endogenous. It employs a linear-quadratic model that accommodates contextual effects, and endogenous local inter- actions, that is where individuals react to the decisions of their neighbors, and endogenous global ones, where individuals react to the mean decision in the economy, both with a lag. Unlike the simple V AR(1) structural model of individual interactions, the planner's problem here involves intertemporal optimization and leads to a system of linear difference equations with expectations. It highlights an asset-like property of socially optimal outcomes in every period which helps characterize the shadow values of connections among agents. Endogenous networking is easiest to characterize when individuals choose weights of social attachment to other agents. It highlights a simultaneity between decisions and patterns of social at- tachment. The paper also poses the inverse social interactions problem, asking whether it is possible to design a social network whose agents' decisions will obey an arbitrarily specified variance covariance matrix.
    Keywords: Social Interactions, Social Networks, Neighborhood Effects, Endogenous Net- working, Social Intermediation, Econometric Identification, Strong versus Weak Ties, Value of Social Connections.
    JEL: D85 A14 J0
    Date: 2005
  4. By: Martin Peitz (International University in Germany, D-76646 Bruchsal); Patrick Waelbroeck (ECARES, Université Libre de Bruxelles, CP 114, 50 av. Roosevelt, 1050 Bruxelles, Belgium)
    Abstract: The use of file-sharing technologies, so-called Peer-to-Peer (P2P) networks, to copy music files has become common since the arrival of Napster. P2P networks may actually improve the matching between products and buyers - we call this the matching effect. For a label the downside of P2P networks is that consumers receive a copy which, although it is an imperfect substitute to the original, may reduce their willingness-to-pay for the original - we call this the competition effect. We show that the matching effect may dominate so that a label's profits are higher with P2P networks than without. Furthermore, we show that the existence of P2P networks may alter the standard business model: sampling may replace costly marketing and promotion. This may allow labels to increase profits in spite of lower revenues.
    Keywords: ?le-sharing, P2P, sampling, information transmission, piracy, music
    JEL: L11 L82
    Date: 2004–12
  5. By: Mathias Drehmann (Bank of England); Jörg Oechssler (Department of Economics, University of Bonn, Germany); Andreas Roider (Department of Economics, University of Bonn, Germany)
    Abstract: Most real world situations that are susceptible to herding are also characterized by direct payoff externalities. Yet, the bulk of the theoretical and experimental literature on herding has focused on pure informational externalities. In this paper we experimentally investigate the effects of several different forms of payoff externalities (e.g., network effects, .first-mover advantage, etc.) in a standard information-based herding model. Our results are based on an internet experiment with more than 6000 subjects, including a subsample of 267 consultants from an international consulting firm. We also replicate and review earlier cascade experiments. Finally, we study reputation effects (i.e., the influence of success models) in the context of herding.
    Keywords: information cascades, herding, network effects, experiment, internet
    JEL: C92 D8
    Date: 2004–11
  6. By: Richard Nahuis; Paul J.G. Tang
    Abstract: Governments try to attract firms and jobs by investing in international infrastructure. We analyse this type of strategic policy competition in a three-country model of monopolistic competition. What governments compete for, is to obtain a so called `hub' position. A hub is a relatively well connected location in a transport network. A hub might thus be an attractive location for firms. However, for a small or backward country the hub position, due to infrastructure investment, is overwhelmed by the disadvantage of a small home-market. As investment to become a hub triggers an investment response from other countries, a backward country is unlikely to keep its relatively attractive position. An attractive location is only sustainable if investment applies to point infrastructure and builds upon a natural advantage (e.g. an harbour). The game of action and reaction delivers socially undesirably high levels of infrastructure investment if transport costs are already low and firm mobility is high.
    Keywords: Infrastructure, Industrial Location, Policy Competition, Monopolistic Competition, International Trade
    JEL: F12 H4 R12
    Date: 2004–08
  7. By: Müller,Rudolf; Perea,Andrés; Wolf,Sascha (METEOR)
    Abstract: An allocation rule is called Bayes-Nash incentive compatible, if there exists a payment rule, such that truthful reports of agents’ types form a Bayes-Nash equilibrium in the directrevelation mechanism consisting of the allocation rule and the payment rule. This paperprovides characterizations of Bayes-Nash incentive compatible allocation rules in socialchoice settings where agents have one-dimensional or multi-dimensional types, quasi-linearutility functions and interdependent valuations. The characterizations are derived byconstructing complete directed graphs on agents’ type spaces with cost of manipulationas lengths of edges. Weak monotonicity of the allocation rule corresponds to the conditionthat all 2-cycles in these graphs have non-negative length.For one-dimensional types and agents’ valuation functions satisfying non-decreasingexpected differences, we show that weak monotonicity of the allocation rule is a necessaryand sufficient condition for the rule to be Bayes-Nash incentive compatibile. In the casewhere types are multi-dimensional and the valuation for each outcome is a linear functionin the agent’s type, we show that weak monotonicity of the allocation rule together withan integrability condition is a necessary and sufficient condition for Bayes-Nash incentivecompatibility.
    Keywords: mathematical economics;
    Date: 2005
  8. By: Joseph A. Clougherty (Wissenschaftszentrum Berlin (WZB), Research Unit: MP-CIC Reichpietschufer 50, D-10785 Berlin, Germany)
    Abstract: The domestic airline merger phenomenon of the late 1980s and early 1990s sparked a great deal of Industrial Organization literature; yet, that literature neglected non-US merger activity and the potential for international competitive incentives. Using an International Business perspective to complement a primarily Industrial Organization analysis, I argue that factoring international competitive gains helps explain the domestic airline merger phenomenon. A Cournot model of airline competition illustrates the international incentives behind integrating domestic with international routes and behind acquiring domestic competitors. Further, comprehensive panel data tests also support large domestic networks and actual mergers improving the international competitiveness of airlines.
    Keywords: airline-mergers, imperfect-competition, international-determinants
    Date: 2004–07
  9. By: Kugler, Maurice; Rapoport, Hillel
    Abstract: In a global context foreign direct investment (FDI) and migration substitute one another in the matching process between workers and firms. However, as labor flows can lead to the formation of business networks, migration can actually facilitate FDI in the long-run. We first present a stylized model for a small open economy illustrating these offsetting effects. We then use U.S. data on bilateral labor inflows and capital outflows to measure the extent of contemporaneous substitutability and dynamic complementarity between migration and FDI. We find that brain drain and FDI inflows are negatively correlated contemporaneously but that skilled migration is associated with future increases in FDI inflows. We also find suggestive evidence of substitutability between current migration and FDI for migrants with secondary education, and of complementarity between past migration and FDI for unskilled migrants.
    Keywords: Brain drain, foreign direct investment inflows, migrant ties and business networks JEL Codes: F22, F43, O41
    Date: 2005–03–01

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