nep-net New Economics Papers
on Network Economics
Issue of 2006‒06‒03
seven papers chosen by
Yi-Nung Yang
Chung Yuan Christian University

  1. Cooperative Networks: Theory and Experimental Evidence By Katinka Pantzy; Anthony Ziegelmeyer
  2. One-Way Compatibility, Two-Way Compatibility and Entry in Network Industries. By Fabio M. Manenti; Ernesto Somma
  3. Complexity in decision-making - the case of Maasvlakte - Connecting decisions, arenas and actors in spatial decision-making By Marcel Van Gils; Erik-Hans Klijn
  4. Liberalising Network Infrastructure Services and the GATS By Massimo Geloso Grosso
  5. The development of long-haul air services from regional and secondary airports in Europe By Nigel Dennis
  6. The airport Network and Catchment area Competition Model - A comprehensive airport demand forecasting system using a partially observed database By Eric Kroes; Abigail Lierens; Marco Kouwenhoven
  7. Regional Cluster Analysis in the Mexican Telecommunications Sector. Impact of Economies of Agglomeration, Clusters and networking in medium-sized Mexican Telecommunication firms. By Alejandro Diaz-Bautista

  1. By: Katinka Pantzy; Anthony Ziegelmeyer
    Abstract: We consider a modified pure public good game characterized by a pre-play negotiation stage, on which pairs of players can form binding cooperation commitments. As the introduced mechanism only supports pairwise rather than more inclusive commitments, it does not implement the efficient outcome. We theoretically derive the incentive compatible and efficient cooperative networks and evaluate the behavioral efficacy of the suggested mechanism to promote and stabilize cooperation. We present the results of two separate experiments. The first experiment serves to provide necessary methodological prerequisites and establishes that neither repetition with an unknown end nor voluntary costly monitoring are behaviorally sufficient to induce cooperative outcomes. In the second experiment we introduce the pairwise commitment mechanism. We show that the mechanism induces aggregate cooperation rates not only beyond the rates observed under the voluntary contribution mechanism operationalized in the first experiment, but also beyond the rate which is supported by the formation of incentive compatible networks. We observe a large heterogeneity between groups: while some groups converge to full cooperation by managing to coordinate on the formation of efficient networks over time, both networks and cooperation rates unravel in other groups. An extended version of our theoretical setting with inequity averse players in the form suggested by Fehr and Schmidt (1999) captures the stylized facts of both experiments.
    Keywords: Strategic formation of networks, Social dilemma, Positive externalities, Experiments
    JEL: C92 D85 H41 Z13
    Date: 2006–05
  2. By: Fabio M. Manenti (Dipartimento di Scienze Economiche "M. Fanno", Università di Padova, Via del Santo 33, 35123 PADOVA); Ernesto Somma (Dipartimento di Scienze Economiche, Università degli Studi di Bari, Via C. Rosalba 53, 70124 BARI)
    Abstract: We study the strategic choice of compatibility between two initially incompatible network goods in a two-stage game played by an incumbent and an entrant firm. Compatibility may be achieved by means of a converter. We derive a number of results under different assumptions about the nature of the converter (one-way vs two-way) and the existence of property rights. In the case of a two-way converter, which can only be supplied by the incumbent, incompatibility will result in equilibrium. When both firms can build a one-way converter and there are no property rights on the necessary technical specifications, the unique equilibrium involves full compatibility. Finally, when each firm has property rights on its technical specifications, full incompatibility and preemption are again observed at the equilibrium. With incompatibility, entry deterrence occurs for sufficiently strong network effects. The welfare analysis shows that the equilibrium compatibility regime is socially inefficient for most levels of the network effects.
    Keywords: Network externalities, one-way compatibility, two-way compatibility
    JEL: L13 L15 D43
  3. By: Marcel Van Gils; Erik-Hans Klijn
    Abstract: Decision-making about infrastructure is very complex. Decisions to develop the Rotterdam harbour are being taken in a network of local, regional and national actors and influenced by international actors (firms, NGO’s etc.) both public and private. This decision-making process shows a lot of uncertainty and complexity and the outcomes are of great importance for the development of the harbour. Network theory has been widely used to indicate, explain and manage uncertainty in decision-making processes. The theory is well equipped for empirical research and has shown many applicable results. The attention for influences from outside the network to decision-making inside the network is however still poorly developed. In the case of decision-making with a strong international component this is a handicap. In this paper the relation between influences from outside and decision-making inside networks is studied both theoretically and empirically. A distinction is made between locally bound and non-locally bound networks to theorise the complex decision-making process. The well-known scientific concept of space of flows versus space of places from Manuel Castells is used as an inspiration to describe the relation between the locally and non-locally bounded networks of decision making. The locally bounded network is formed by the formal decision making process between the governmental and non-governmental organisations in countries, regions and municipalities. The non-locally bounded networks exist of organizations that are footloose and act globally mainly according to economic principals. The concept of inclusion is used to analyse the various actors in the decision-making process. The paper starts with the description of the external influences in port areas in general. The balance between the influence of local and non-local bounded networks depends on the multiple-inclusion of the different actors in the decision-making process in both networks. In areas in which many actors are included in the place-bounded networks, the external influences can be expected to be marginal. The port area of Rotterdam is a node in international networks and so the hypothesis can be set that in the Rotterdam port area the influence of actors mainly included in non-place bounded networks is significant in decision making networks. To explore this assumption various networks, which are relevant for decision-making about spatial issues in the Rotterdam port are identified and the differences in inclusion of the relevant actors is analysed. By means of the analysis of perceptions of the various actors (locally bound or non-locally bound) and their strategic choices and decisions we show that notions on international port development are being interpreted and transformed quite differently by the various actors. This first part of analysis highlights the possible gap between the awareness of the various actors of the non-locally bounded networks and their translation into their strategies in local bounded networks. We also trace difference of perceptions and strategies between actors who solely operate in locally bound networks and actors who are both included in locally and non-locally bound networks (like shipping firms etc). This second part of analysis indicates if there are differences in what the actors use as input for their respective positions in the decision-making networks. The paper shows that the influence of external developments in non-locally bound networks manifests itself in locally bound networks but is transformed and interpreted in many ways by the different actors. The paper ends with some conclusions about decision-making on large ports and the possibilities to influence this complex decision-making process that takes place in locally bound and non-locally bounded networks at the same time.
    Date: 2005–08
  4. By: Massimo Geloso Grosso
    Abstract: This study reviews key issues in liberalising network infrastructure services ? including telecommunications, postal/courier, energy, water and sewage ? in the national and multilateral contexts. The economic and social significance of these services means that they are high on the list of development priorities in many countries. Enhanced trade and investment in network infrastructure services can help achieve these development goals. Liberalisation, however, is no easy task and requires sound regulation and effective institutions to address market failures and ensure public policy objectives. If appropriately designed, bound liberalisation under the GATS can contribute to the advancement of national objectives by improving investor?s confidence when countries decide to allow private sector participation in these services. The WTO services agreement can affect the regulatory conduct of governments in some areas of network infrastructure services, particularly when specific commitments are made. This is intensified by the fact that the GATS is a relatively young agreement and some of its provisions remain to be tested in practice. It is thus crucial to carefully examine its provisions and tailor-specific commitments to national policy objectives.
    Keywords: regulations, liberalisation, infrastructure, GATS, public services, network
    Date: 2006–05–22
  5. By: Nigel Dennis
    Abstract: In recent years there has been tremendous interest in the growth of low-cost airlines in Europe operating from regional and secondary airports. These have been entirely in the short-haul sector, however. Intercontinental services remain dominated by a few large airports such as London Heathrow, Frankfurt, Paris CDG and Amsterdam. This paper examines the recent development of long-haul services and shows that some of the medium sized European airports have seen their network reduced in the last decade, while it also appears more difficult to replicate Ryanair’s use of obscure minor airports in the long-haul arena. Possible means of providing long-haul links to European regional airports are examined. Continental Airlines is launching new routes from New York to places such as Belfast and Bristol with the Boeing 757 offering around 150 seats. These obviously depend upon the hub feed at the US end to gather a much wider range of North American destinations together. Emirates has ambitious plans to serve more European airports from its rapidly growing hub at Dubai. Already it offers the only eastbound long-haul flight out of Scotland (Glasgow-Dubai). Routes between smaller airports catering for the visiting friends and relatives market have developed where there has been historical migration. These are typically at low frequencies. Canada has services from Europe such as Cardiff-Toronto and Lyon-Montreal. Hamburg has a link to Accra in Ghana, Las Palmas (Canary Islands) to Havana, Cuba and Birmingham to Ashgabat in Turkmenistan. In some cases it is possible to support a service through a second stop in Europe (e.g. Lisbon-Porto-Caracas). Low frequency services are also to be found catering for the holiday market such as to Florida or the Caribbean (e.g. Dusseldorf-Orlando). In the absence of any direct long-haul service, connections via a European hub are necessary to access intercontinental points from regional airports in Europe. International alliances between airlines are shown to have been a mixed blessing in this respect. They have generally widened connection opportunities via the major hubs and led to more competitive through fares becoming available. However, some secondary and regional hubs have been run-down in favour of major hubs in the same alliance (which may be in a different European country), reducing accessibility from smaller and more peripheral regional airports. Examples include London Gatwick which has the main London service from many smaller UK airports such as Jersey, Inverness and Plymouth but has been run down as a long-haul hub by British Airways and Copenhagen, which now has very limited long-haul service by SAS; instead a double-change is required from many small Scandinavian airports to reach Star Alliance services out of Frankfurt. The growth of low-cost short-haul airlines such as Ryanair and easyjet may have reduced fares for local passengers but has reduced global connectivity where they have driven a traditional hub airline off the route. A good example is Belfast in Northern Ireland which used to have a link to Amsterdam by KLM. They have been displaced by easyjet, which is fine for passengers only travelling to Amsterdam but beyond there is no longer co-ordinated scheduling and through fares to KLM’s global network. If a passenger does attempt to connect via Amsterdam it will usually cost them more than previously and if anything goes wrong, the connection is ‘at their own risk’. The scope for a long-haul low-cost airline is examined. It is demonstrated that it is difficult to obtain a sufficient cost advantage in long-haul for a ‘no-frills’ all-economy class product. This is because the major airlines are able to obtain very high yields from their first and business class traffic (one full fare first class passenger with a lie flat bed may be paying the equivalent of 40 deeply discounted economy excursion fares). This enables airlines to offer the seats at the back of the aircraft based on a very low marginal cost. It is difficult to increase aircraft and crew utilisation as this is already high on intercontinental sectors. Cargo is less easy to ignore as it provides significant extra revenue on long-haul flights although introduces complexity. It is also difficult to eliminate all ‘frills’ on flights of 8 or 12 hours duration: even if charged for it is necessary to maintain food service (galley space) and in-flight entertainment, while keeping standard provision of toilets, baggage handling etc. The cost saving from using secondary airports is marginal for long distance traffic where it forms a much smaller proportion of total costs. Many of these smaller airports have runway length or apron/terminal space insufficient to handle widebody aircraft. Hub feed is much more crucial for long-haul services: there are few dense routes (mainly Virgin Atlantic’s long-haul network from London plus Paris-New York). Intercontinental services from Frankfurt or Amsterdam typically depend on connections for 70-80% of their traffic. Bilateral air services agreements between governments also restrict the opportunities for long-haul services from regional airports. When the UK-India bilateral was renegotiated to allow extra flights, the three British carriers applying all wanted to use this scarce capacity from London Heathrow rather than any regional airport. Other bilaterals may specifically name the capital city only in the route schedule. It is concluded that the best scope for long-haul services from the regions is to major hub airports in other parts of the world, such as those developed by Emirates and Continental. Opportunities for point-to-point leisure services fall into two main categories: ethnic links and holiday destinations (some of which may already exist as charters). A long-haul low-cost ‘no-frills’ air service is likely to be a risky venture but carriers such as easyJet may be tempted to try this from their bases in secondary airports such as London Stansted or Berlin Schonefeld if profits falter on their European network, using their short-haul services to provide feed. Otherwise, the regional airports are in the hands of the major airlines or alliance groups and their European feeder operations. Important links are currently under threat from lack of capacity for small aircraft at the major hubs, run-down of secondary hubs and competition from low-cost airlines for short-haul traffic.
    Date: 2005–08
  6. By: Eric Kroes; Abigail Lierens; Marco Kouwenhoven
    Abstract: For airport capacity planning long term forecasts of aircraft movements are required. The classical approach to generate such forecasts has been the use of time series data together with econometric models, to extrapolate observed patterns of growth into the future. More recently, the dramatically increased competition between airports, airlines and alliances on the one hand, and serious capacity problems on the other, have made this approach no longer adequate. Airport demand forecasts now need to focus heavily on the many competitive elements in addition to the growth element. In our paper we describe a comprehensive, pragmatic air demand model system that has been implemented for Amsterdam’s Schiphol Airport. This model, called the Airport Network and Catchment area Competition Model (ACCM), provides forecasts of future air passenger volumes and aircraft movements explicitly taking account of choices of air passengers among competing airports in Europe. The model uses a straightforward nested logit structure to represent choices of air passengers among alternative departure airports, transport modes to the airport, airlines/alliances/low cost carriers, types of flight (direct versus transfer), air routes, and main modes of transport (for those distances where car and high-speed train may be an alternative option). Target year passenger forecasts are obtained by taking observed base year passenger numbers, and applying two factors to these: (1)Firstly a growth factor, to express the global impact of key drivers of passenger demand growth such as population size, income, trade volume; (2)Secondly a market share ratio factor, to express the increase (or decline) in attractiveness of the airport due to anticipated changes in its air network and landside-accessibility, relative to other (competing) airports. The target year passenger forecasts are then converted into aircraft movements to assess whether or not the available runway capacity is adequate. Key inputs to the model are data bases describing for base year and target year the level of service (travel times, costs, service frequencies) of the land-side accessibility of all departure airports considered, and the air-side networks of all departure and hub airports considered. The air-side networks (supply) are derived from a detailed OAG based flight simulation model developed elsewhere. A particular characteristic of the ACCM implementation for Schiphol Airport is that it had to be developed using only a partial data set describing existing demand: although detailed OD- information was available for air passengers using Schiphol Airport in 2003, no such data was available for other airports or other transport modes. As a consequence a synthetic modelling approach was adopted, where the unobserved passenger segments for the base year were synthesised using market shares ratios between unobserved and observed segments forecasts for the base year together with the observed base year passenger volumes. This process is elegant and appealing in principle, but is not without a number of problems when applied in a real case. In the paper we will first set out the objectives of the ACCM as it was developed, and the operational and practical constraints that were imposed. Then we will describe how the ACCM fits with model developments in the literature, and sketch the overall structure that was adopted. The following sections will describe the modelled alternatives and the utility structures, the level-of-service data bases used for land-side and air-side networks, for base year and target year. Then we will describe in some detail how we dealt with the partial data issue: the procedure to generate non-observed base year data, the validation, the problems encountered, the solutions chosen. Finally we shall show a number of the results obtained (subject to permission by the Dutch Ministry of Transport), and provide some conclusions and recommendations for further application of the methodology.
    Date: 2005–08
  7. By: Alejandro Diaz-Bautista (COLEF)
    Abstract: There have been many empirical studies analyzing telecommunications clusters across countries and regions since the late eighties and nineties. Recently, much attention has been paid in the literature of cluster analysis in telecommunications. Knowledge and technology transfer matter for economic growth. Most formal analyses of knowledge driven economies have focused on the supply side: research and development and productivity. In modern high-tech economies, like telecommunications, the demand side of markets for goods are important. The paper develops a model of demand and supply for Mexico looking at a cluster formation in a regional geographical space. Concentrations in space spontaneously emerge, even when one considers quality of products, physical distance and transportation costs. These clusters arise to resolve the tension between spatial spillover externalities and the costs of adapting to new sophisticated telecommunications products. Telecommunications clusters in Mexico affect competition in three broad ways: first, by increasing the productivity of companies based in a region; by driving the direction and pace of innovation in telecommunications, which underpins future productivity growth; and by stimulating the formation of new business communications technology, which expands and strengthens the cluster itself. I describe most of the largest cable/satellite TV and related telecommunications clusters in Mexico. Sumario: Se han tenido diversos estudios empíricos en los ochentas y noventas que tratan de comprobar la teoría de los clusters o concentración de empresas interrelacionadas entre sí y concentradas en una zona geográfica concreta. De igual manera se han realizado estudios empíricos de cómo estos clusters pueden traer beneficios económicos a las empresas de telecomunicaciones. Los clusters aumentan la productividad de las empresas de telecomunicaciones, que es uno de los caminos para fortalecer el crecimiento económico. Al aumentar la productividad, las empresas destinan más recursos a innovación y desarrollo, crean más riqueza y siguen ganando productividad; todo ello en un marco de gran competitividad, porque, las regiones más desarrolladas son aquellas en las que existe más competencia. La implantación de una política regional en telecomunicaciones impulsará las concentraciones sectoriales de empresas en zonas geográficas concretas. Esta localización, ya se da en países industrializados como en Estados Unidos, y se empieza a dar en México, lo que ayuda a aumentar la productividad de las empresas de telecomunicaciones. El estudio desarrolla un modelo de oferta y demanda de las empresas de telecomunicaciones para poder observar la formación de clusters en las distintas áreas geográficas de México.
    Keywords: Clusters, Agglomerations, Telecommunications, Econometrics, TV, Mexico
    JEL: R
    Date: 2005–11–24

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