nep-net New Economics Papers
on Network Economics
Issue of 2006‒01‒24
eighteen papers chosen by
Yi-Nung Yang
Chung Yuan Christian University

  1. Network Externality and Commercial Software Piracy By Sougata Poddar
  2. Network Competition and Entry Deterrence By Calzada, Joan; Valletti, Tommaso
  3. Network effects of the productivity of infrastructure in developing countries By Hurlin, Christophe
  4. Network Asymmetries and Access Pricing in Cellular Telecommunications By Viktória Kocsis
  5. Product Market Competition and Economic Performance in France By Jens Høj; Michael Wise
  6. International networks of knowledge flows: an econometric analysis By M. A. Maggioni; T. E. Uberti
  7. Spatial Dispersion of Peering Clusters in the European Internet By Alessio D'Ignazio; Emanuele Giovannetti
  8. Measuring Marginal Congestion Costs of Urban Transportation: Do Networks Matter? By Safirova, Elena; Gillingham, Kenneth
  9. Wages and Employment in a Random Social Network with Arbitrary Degree Distribution By Yannis Ioannides; Adriaan Soetevent
  10. A strategic model of complex networks formation. By Nicolas Carayol; Pascale Roux
  11. Social Network Theory, Broadband and the World Wide Web By Daniel Sgroi
  12. Connecting People By M. Ali Choudhary
  13. Optimal Redesign of the Dutch Road Network By Snelder, M.; Wagelmans, A.P.M.; Schrijver, J.M.; Zuylen, H.J. van; Immers, L.H.
  14. Political Parties and Network Formation By Topi Miettinen; Panu Poutvaara
  15. Club Formation Games with Farsighted Agents By Frank H. Page, Jr.; Myrna H. Wooders
  16. The Economics of Competition Policy: Recent Developments and Cautionary Notes in Antitrust and Regulation By Brennan, Timothy
  17. U.S. Antitrust and EU Competition Policy: Where has the Former Been, Where is the Latter Going? By Stephen Martin
  18. Competition Policy and EU Governance By Annette Bongardt

  1. By: Sougata Poddar (Department of Economics, National University of Singapore)
    Abstract: Contrary to the earlier findings under end-users piracy where the existence of strong network externality was shown to be a reason for allowing limited piracy, we find when the piracy is commercial in nature the optimal policy for the original software developer is to protect its product irrespective of the strength of network externality in the software users market.
    Keywords: Copyright violations, Commercial/Retail piracy, Network externality, Quality
    JEL: D23 D43 L13 L86
  2. By: Calzada, Joan; Valletti, Tommaso
    Abstract: We develop a model of logit demand that extends to a multi-firm industry the traditional duopoly framework of network competition with access charges. Firstly, we show that, when incumbents do not face the threat of entry and compete in prices, they inefficiently establish the reciprocal access charge below cost. This inefficiency disappears if incumbents compete in utilities instead of prices. Secondly, we study how incumbents change their choices under the threat of entry when they determine an industry-wide (non-discriminatory) access charge. We show how incumbents may accommodate all possible entrants, only a group of them, or may completely deter entry. When entry deterrence is the preferred option, incumbents distort upwards the access charges.
    Keywords: entry deterrence; interconnection; telecommunications
    JEL: L41
    Date: 2005–12
  3. By: Hurlin, Christophe
    Abstract: Using panel data models, the author examines the threshold effects of the productivity of infrastructure investment in developing countries. He considers various specifications of an augmented production function that allow for endogenous thresholds. More precisely, these specifications are tested in a panel threshold regression model. The author ' s main robust result is the presence of strong threshold effects in the relationship between output and private and public inputs. Whatever the transition mechanism used, the testing procedures lead to strong rejection of the linearity of this relationship. In particular, the productivity of infrastructure investment generally exhibits some network effects. When the available stock of infrastructure is very low, investment in this sector has the same productivity as noninfrastructure investment. On the contrary, when a minimum network is available, the marginal productivity of infrastructure investment is generally largely greater than the productivity of other investment. Finally, when the main network is achieved, its marginal productivity becomes similar to the productivity of other investment.
    Keywords: Economic Theory & Research,Investment and Investment Climate,Public Sector Economics & Finance,Non Bank Financial Institutions,Technology Industry
    Date: 2006–01–01
  4. By: Viktória Kocsis (Corvinus University of Budapest)
    Abstract: Network shares and retail prices are not symmetric in the telecommunications market with multiple bottlenecks which give rise to new questions of access fee regulation. In this paper we consider a model with two types of asymmetry arising from different entry timing, i.e. a larger reputation for the incumbent and lower cost of servicing for the entrant as a result of more advanced technology. As a result firms have divergent preferences over the access fee. In case of linear and non-linear prices the access fee might still act as the instrument of collusion, but only if a side-payment is permitted which is generally welfare decreasing. Moreover, in contrast with the European regulatory framework, the access fee on the basis of termination cost might not necessarily be a socially preferable solution.
    Keywords: cost asymmetry; brand loyalty; imperfect competition; network interconnection; access fee
    JEL: L11 L13 L51 L96
    Date: 2005–09–16
  5. By: Jens Høj; Michael Wise
    Abstract: Over the past decade, French economic growth has been insufficient to bring down high and persistent unemployment. Available cross-country evidence suggests that enhancing competition is an important means to improve economic performance. France is catching up with best practice in competition policy reform. However, other policy considerations often hamper the emergence of effective competition. Relatively weak competitive pressures remain in a number of sectors, particularly in sheltered service industries. Restrictions on competition reduce productivity growth and hinder job creation in regulated sectors. Policy must focus on giving more weight to overall consumer welfare in the face of opposition from relatively small but vocal special interest groups. This paper discusses reforms that would increase competition by: i) strengthening institutions and better clarifying their responsibilities with respect to competition enforcement; ii) reinforcing the ability of sector regulators to improve non discriminatory third party access and other aspects of competition in the network industries; iii) abolishing overly prescriptive regulation in the retail sector; and iv) removing unnecessary protection in some professional services. This Working Paper relates to the 2005 OECD Economic Survey of France (
    Keywords: network industries, France, regulatory reforms, competition law, productivity and growth, retail sector, product market competition
    JEL: K21 L11 L16 L33 L43 L81 L9
    Date: 2006–01–04
  6. By: M. A. Maggioni; T. E. Uberti
    Abstract: In this paper we address the manifold nature of knowledge through the analysis of four distinct but complementary phenomena (Internet hyperlinks, European research networks, EPO co-patent applications, Erasmus students mobility) that characterize knowledge as an intrinsic relational structure (directly) connecting people, institutions and (indirectly) regions across five European countries. We study the structure (in terms of density, clustering and centralisation) of these networks through network analysis techniques and test the influence of geographical distance as opposed to sectoral (based on the industrial distribution of the innovative activity) and functional (based on the value of the RSII European technological leadership index) distances in shaping the strength of knowledge relations though a gravitational model. The empirical analysis shows the existence of a polarized centre-periphery hierarchy of European regions that is reflected in the structure of knowledge flows. By using a "gravitational" model we demonstrate that, far from the claim of the "death of distance", geographic distance is still relevant for determining the structure of inter-regional knowledge flows. Functional and sectoral distances play also a crucial role suggesting that knowledge flows easily between similar (according to their scientific, technological and sectoral characteristics) regions. If the EU intends to build a "truly European" Research Area in which the networking of "centres of excellence" acts as "catalysts for backward areas" this target may still be far away.
    JEL: R12 F14 D85 O31
    Date: 2006–01
  7. By: Alessio D'Ignazio; Emanuele Giovannetti
    Abstract: We study the role played by geographical distance in the peering decisions between Internet Service Providers. Firstly, we assess whether or not the Internet industry shows clustering in peering; we then concentrate on the dynamics of the agglomeration process by studying the effects of bilateral distance in changing the morphology of existing peering patterns. Our results show a dominance of random spatial patterns in peering agreements. The sign of the effect of distance on the peering decision, driving the agglomeration/dispersion process, depends, however, on the initial level of clustering. We show that clustered patterns will disperse in the long run.
    Keywords: Internet, Peering, clustering, agglomeration, Networks, IXP
    JEL: C21 C25 D85 L86 R12 Z13
    Date: 2006–01
  8. By: Safirova, Elena (Resources For the Future); Gillingham, Kenneth
    Abstract: In determining the marginal cost of congestion, economists have traditionally relied upon directly measuring traffic congestion on network links, disregarding any “network effects,” since the latter are difficult to estimate. While for simple networks the comparison can be done within a theoretical framework, it is important to know whether such network effects in real large-scale networks are quantitatively significant. In this paper we use a strategic transportation planning model (START) to compare marginal congestion costs computed link-by-link with measures taking into account network effects. We find that while in aggregate network effects are not significant, congestion measured on a single link is a poor predictor of total congestion costs imposed by travel on that link. Also, we analyze the congestion proliferation effect on the network to see how congestion is distributed within an urban area.
    Keywords: marginal congestion costs, congestion pricing, urban networks
    JEL: R41 R48
  9. By: Yannis Ioannides; Adriaan Soetevent
    Keywords: job search, social networks, arbitrary degree distribution, wage inequality, incidence of unemployment
    JEL: D83 J31 J64
    Date: 2006
  10. By: Nicolas Carayol; Pascale Roux
    Abstract: This paper introduces a spatialized variation of the Connections model of Jackson and Wolinski (1996). Agents benefit from their direct and indirect connections in a communication network. They are arranged on a circle and bear costs for maintaining direct connections which are linearly increasing with geographic distance. In a dynamic setting, this model is shown to generate networks that exhibit the small world properties shared by many real social and economic networks.
    Keywords: Strategic Network Formation, Pairwise Stability, Small World, Monte Carlo.
    Date: 2006
  11. By: Daniel Sgroi
    Abstract: This paper aims to predict some possible futures for the World Wide Web based on several key network parameters: size, complexity, cost and increasing connection speed thorough the uptake of broadband technology. This is done through the production of a taxonomy specifically evaluating the stability properties of the fully-connected star and complete networks, based on the Jackson and Wolinsky (1996) connections model modified to incorporate complexity concerns. We find that when connection speeds are low neither the star nor complete networks are stable, and when connection speeds are high the star network is usually stable, while the complete network is never stable. For intermediate speed levels much depends upon the other parameters. Under plausible assumptions about the future, we find that the Web may be increasingly dominated by a single intermediate site, perhaps best described as a search engine.
    Keywords: social network theory, connection speed, broadband, complete network, fully-connected star
    JEL: D85
    Date: 2006–01
  12. By: M. Ali Choudhary (University of Surrey)
    Abstract: This paper presents a model in which firms invest on their customer-networks to maintain current and future profits. The model is used to illustrate how the costs of maintaining networks and uncertainties about the customer-networks reduce the importance of making investments on the customer-based. Empirical evidence provides support for the theory.
    Keywords: Network costs, Uncertainty, Pricing
    JEL: D43 D80 L11
    Date: 2004–07
  13. By: Snelder, M.; Wagelmans, A.P.M.; Schrijver, J.M.; Zuylen, H.J. van; Immers, L.H. (Erasmus Research Institute of Management (ERIM), RSM Erasmus University)
    Abstract: The Dutch national road network has been developed over several decades. In the past, roads were constructed according to the then current spatial and transportation planning philosophies. Because the existing road network is a result of a long process of successive developments, the question can be asked whether this network is the most appropriate from the current point of view, especially taking in consideration the current socio economic structure of the Netherlands. To answer this question an optimization algorithm for designing road networks has been developed. With this algorithm the Dutch road network has been redesigned based on minimization of the travel and infrastructure costs and by taking into account the socio economic structure of the Netherlands. A comparison between the existing network and the new design shows that the redesigned Dutch national road network has significantly lower total costs than the existing road network. It is found that the construction of less roads with more lanes on different locations leads to a reduction of the total travel time and the total vehicles kilometers traveled.
    Keywords: Network Design Problem;Road Network;Netherlands;Redesign;Scratch;Motorway;
    Date: 2006–01–12
  14. By: Topi Miettinen (University College London and University of Helsinki); Panu Poutvaara (University of Helsinki and IZA Bonn)
    Abstract: We argue that anti-corruption laws may provide an efficiency rationale for why political parties should meddle in the distribution of political nominations and government contracts. Anticorruption laws forbid trade in spoils that politicians distribute. However, citizens may pay for gaining access to politicians and, thereby, to become potential candidates for nominations. Such rent-seeking results in excessive network formation. Political parties may reduce wasteful network formation, thanks to their ability to enter into exclusive membership contracts. This holds even though anti-corruption laws also bind political parties.
    Keywords: political parties, two-sided platforms, rent-seeking, network formation
    JEL: D72 D85 L14
    Date: 2006–01
  15. By: Frank H. Page, Jr. (Department of Finance, University of Alabama); Myrna H. Wooders (Department of Economics, Vanderbilt University)
    Abstract: Modeling club structures as bipartite networks, we formulate the problem of club formation as a game of network formation and identify those club networks that are stable if agents behave farsightedly in choosing their club memberships. Using the farsighted core as our stability notion, we show that if agents' payoffs are single-peaked and agents agree on the peak club size (i.e., agents agree on the optimal club size) and if there sufficiently many clubs to allow for the partition of agents into clubs of optimal size, then a necessary and sufficient condition for the farsighted core to be nonempty is that agents who end up in smaller-than-optimal size clubs have no incentive to switch their memberships to already existing clubs of optimal size. In contrast, we show via an example that if there are too few clubs relative to the number of agents, then the farsighted core may be empty. Contrary to prior results in the literature involving myopic behavior, our example shows that overcrowding and farsightedness lead to instability in club formation.
    Keywords: Club formation, club networks, noncooperative games, farsighted stability, farsighted core, path dominance
    JEL: D85 D71 C72 C73
    Date: 2005–12
  16. By: Brennan, Timothy (Resources For the Future)
    Abstract: Competition policy has become more prominent while the thinking underlying those policies has undergone substantial revision. We survey advances in antitrust economics and the economics of regulation. Increasing reliance on non-cooperative game theory as a foundation for antitrust has led to rethinking conventional approaches. We review some of these contributions in the context of mergers, vertical restraints, and competition in "network industries." Turning to regulation, we review standard rationales and identify some major contemporary refinements, with examples of the motives behind them and their application. After brief thoughts on privatization, we conclude with suggestions on design and implementation, with some observations on whether these developments are as valuable in the corridors of policy as they may be in the halls of academe.
  17. By: Stephen Martin (Department of Economics, Krannert School of Management, Purdue University)
    Abstract: The earliest U.S. antitrust laws were adopted after technological changes — most importantly, the development of a national railway network — made the U.S. political union a single economic market. They were adopted with the stated, and no doubt largely sincere, purposes of preventing collusion and strategic entry-deterring behavior. Early application of the antitrust laws relied on a rule of competition to determine whether business conduct was or was not permitted. This has evolved into an explicit evaluation of the impact of businesses practices on consumer welfare, conceived of and measured in an economic sense. EU competition policy was adopted in advance of economic integration. It differed sharply from the traditional policies of the original EC6 member states toward business behavior. It was adopted with the stated, and most likely sincere, purpose of furthering economic integration, and to this end prohibited practices that were seen as distorting competition. Early applications of competition policy, particularly in the European Coal and Steel Community, may have had perverse effects. There are indications of an evolution towards an economic performance standard in the European Union as well.
    Keywords: US antitrust policy, EU competition policy, European Union, Economic governance, regulation
    JEL: L40 L41 L42 L51 L97 L98
    Date: 2005–12
  18. By: Annette Bongardt (DEGEI, Universidade de Aveiro)
    Abstract: This paper focuses on competition policy in the European Union from an economic, micro-governance point of view. It analyses recent developments in economic governance in the field of the common competition policy, which had for a long time been the exclusive competence of the European Commission (Community method), notably the nature and governance implications of recent developments associated with single market integration, the 5th EU enlargement, and the workload backlog of the Commission. The common competition policy has been subject to various changes against the background of increasing market integration and the expansion of the single market (for instance, the European merger regulation and the liberalisation of network industries, regulated at the national level), most recently by the new institutional framework (EC regulation 1/2003 by the EU Council) which entered into force on the day of the EU’s fifth enlargement on 1 May 2004 and which implies the direct and parallel application of EU anti-trust laws by national competition authorities (NCA).These developments in terms of the economic governance of competition policy render it important to analyse the competences of NCAs with respect to the European Commission but also in regard to each other and to sectoral national regulators. The paper concludes that although the single market and competition policy had looked profoundly Europeanised in the Community sphere, single market integration has not led to parallel centralisation at the Community level but to decentralisation and that challenges as to legal uncertainty and consistency of application remain to be resolved.
    Keywords: EU Competition Policy, European Union, Economic Governance, Regulation, European Union, Portugal
    JEL: L41 L42 L97 L98
    Date: 2005–12

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