nep-net New Economics Papers
on Network Economics
Issue of 2006‒06‒17
four papers chosen by
Yi-Nung Yang
Chung Yuan Christian University

  1. Network Effects and Switching Costs: two short essays for the new New Palgrave By Paul Klemperer
  2. STRATEGIC EFFECTS OF AIRLINE ALLIANCES By Rafael Moner Colonques; Ricardo Flores Fillol
  3. Knowledge flows and the geography of networks. A strategic model of small worlds formation. By Nicolas Carayol; Pascale Roux
  4. Empirics of Social Interactions By Yannis Ioannides

  1. By: Paul Klemperer (Nuffield College, University of Oxford)
    Abstract: We briefly survey the economics of network effects and switching costs (in 3,400 words). For comprehensive coverage of the same ground see Farrell and Klemperer’s 60,000-word contemporaneous survey, available at
    Date: 2006–06–08
  2. By: Rafael Moner Colonques (Universitat de València); Ricardo Flores Fillol (Universidad Autónoma de Barcelona)
    Abstract: This paper looks at the endogenous formation of airline alliances bymeans of a two-stage game where first airlines decide whether to form analliance and then fares are determined. We analyze the profitability and thestrategic effects of airline alliances when two complementary alliances,following different paths, may be formed to serve a certain city-pair market.The formation of a complementary alliance is shown to hurt outsiders and thatfares decrease in the interline market. Contrary to what might be expected, wefind that complementary alliances are not always profitable, even in thepresence of economies of traffic density. The interplay between market size, thedegree of product differentiation and the intensity of economies of trafficdensity determines whether the market equilibrium entails no alliances, a singlealliance or a double alliance.
    Keywords: complementary airline alliances, economies of traffic density, product differentiation
    JEL: L13 L2 L93
    Date: 2006–06
  3. By: Nicolas Carayol; Pascale Roux
    Abstract: This paper aims to demonstrate that the strategic approach of network formation can generate networks that share the main structural properties of most real social networks. We introduce a spatialized variation of the Connections model (Jackson and Wolinski, 1996) in which agents balance the benefits of forming links resulting from imperfect knowledge flows through bonds against their costs which increase with geographic distance. We show that, for intermediary levels of knowledge transferability, our time-inhomogeneous process selects networks which exhibit high clustering, short average distances and, when the costs of link formation are normally distributed across agents, skewed degree distributions.
    Keywords: Strategic network formation ; Time-inhomogeneous process ; Knowledge flows ; Small worlds ; Monte Carlo simulations.
    JEL: D85 C63 Z13
    Date: 2006
  4. By: Yannis Ioannides
    Abstract: Empirical studies of social interactions address a multitude of definitional, econometric and measurement issues associated with role of interpersonal and social group influences in economic decisions. Applications range from studies of crime patterns, neighborhood influences on upbringing and conformist behavior, mutual influences among classmates and keeping up with roommates in colleges regarding academic and social activities, to herding and to learning about social services. The entry reviews several instances of successful identification of effects emanating from others' behavior as distinct from characteristics of others. Data sets with increasingly rich contextual information will allow estimation of complex models of economic decisions.
    Keywords: Social interactions, peer effects, contextual effects, neighborhood choice, neighbors, neighborhoods, neighborhood effects, laboratory experiments, field experiments, self selection, social networks.
    JEL: C25 I30 R00
    Date: 2006

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