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on Network Economics |
| By: | Hend Ghazzai (CES-CERMSEM et LEGI-Ecole Polytechnique de Tunisie); Rim Lahmandi-Ayed (LEGI-Ecole Polytecnique de Tunisie) |
| Abstract: | We characterize the equilibrium of a game in vertically differentiated market which exhibits network externalities. There are two firms, an incumbent and a potential entrant. Compatibility means in our model that the inherent qualities of the goods are close enough. By choosing its quality, the entrant chooses in the same time to be compatible or not. The maximal quality difference that allows compatibility i.e the compatibility interval is chosen by the incumbent which involves costs increasing with the width of that interval. We show that in order to have two active firms at price equilibrium, the sufficient condition on the market size of a standard vertical differentiation model remains valid under compatibility. However, an additional condition on the firms' qualities is needed under incompatibility. For a small quality segment, the incumbent can block entry choosing an empty compatibility interval. At the subgame perfect equilibrium, incompatibility prevails if the quality segment is large and the compatibility costs are high. Compatibility prevails for sufficiently large quality segments and low costs of compatibility. Finally there is no entry if the quality segment is small and the compatibility costs are high. |
| Keywords: | Vertical differentiation, compatibility, network externalities. |
| JEL: | L13 L15 D43 |
| Date: | 2006–02 |
| URL: | http://d.repec.org/n?u=RePEc:mse:wpsorb:b06013&r=net |
| By: | Jochen Moebert (Darmstadt University of Technology, Department of Economics) |
| Abstract: | Social network formation models are often compared by their network structures, which satisfy specific equilibrium or welfare properties. Here, we concentrate on welfare criteria and define properties of utility function which are causal for certain network structures. We hope the identification of different properties of utility function will enhance the understanding of the relationship of different network formation models. If this line of research is continued, a kind of engineering of network formation models might arise such that actual social networks can be directly described by appropriate utility functions. |
| Keywords: | social networks, network formation, rival networks, welfare, efficiency |
| JEL: | D60 D85 L14 Z13 |
| Date: | 2006–03 |
| URL: | http://d.repec.org/n?u=RePEc:tud:ddpiec:160&r=net |
| By: | Jochen Moebert (Darmstadt University of Technology, Department of Economics) |
| Abstract: | The mainly used welfare criterion in the social network literature is Bentham´s utilitarian concept. The shortcomings of this concept are well-known. We compare the outcomes of the utilitarian concept with the Nash social welfare function. By using a Taylor approximation we deduce a formula which allows the direct comparison of both concepts. The implications of welfare considerations of important network formation models are evaluated by using the multiplicative concept. We introduce a new symmetric connection model which is related to Nash´s welfare function in the same way as the original model is related to the utilitarian function. Based on the observation that heavy tail distributions like the power law distribution and the Pareto distribution can be explained by multiplicative structures we propose to use multiplicative utility functions in social network models. Furthermore, multiplicative utility and welfare functions together exhibit favorable characteristics both in normative and positive terms. Many empirically observed social networks have structures which are better modelled by multiplicative functions. From the normative perspective, multiplicative functions might be attractive since the Nash product introduces some form of justice. |
| Keywords: | social networks, welfare, efficiency, Nash product, jefficiency, justice |
| JEL: | A13 D11 D23 D61 D63 L14 Z13 |
| Date: | 2006–03 |
| URL: | http://d.repec.org/n?u=RePEc:tud:ddpiec:161&r=net |
| By: | Subhayu Bandyopadhyay (West Virginia University and IZA Bonn); Cletus C. Coughlin (Federal Reserve Bank of St. Louis); Howard J. Wall (Federal Reserve Bank of St. Louis) |
| Abstract: | This paper provides new estimates of the effects of ethnic network on U.S. exports. In line with recent research, our dataset is a panel of exports from U.S. states to 29 foreign countries. Our analysis departs from the literature in two ways, both of which show that previous estimates of the ethnic-network elasticity of trade are sensitive to the restrictions imposed on the estimated models. Our first departure is to control for unobserved heterogeneity with properly specified fixed effects, which we can do because our dataset contains a time dimension absent from previous studies. Our second departure is to remove the restriction that the network effect is the same for all ethnicities. We find that ethnicnetwork effects are much larger than has been estimated previously, although they are important only for a subset of countries. |
| Keywords: | ethnic networks, state exports |
| JEL: | F10 R10 |
| Date: | 2006–03 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp1998&r=net |