nep-net New Economics Papers
on Network Economics
Issue of 2006‒12‒01
nine papers chosen by
Yi-Nung Yang
Chung Yuan Christian University

  1. Vertical differentiation, network externalities and compatibility decisions : an alternative approach By Hend Ghazzai; Rim Lahmandi-Ayed
  2. Advertising as Distortion of Learning in Markets with Network Externalities By Brekke, Kjell Arne; Rege, Mari
  3. Networks, Information and Prevention of Indiosyncratic Risks in Mexican Banks 1945-1980 By Gustavo A. Del Ángel Mobarak
  4. Competing through cooperation: Standard setting in wireless telecommunications By Aija Leiponen
  5. Does technology affect network structure? - A quantitative analysis of collaborative research projects in two specific EU programmes By Roediger-Schluga, Thomas;
  6. The value of downstream information: exploring the effects of business networks on buyer-supplier relationships By Claro, D. P.
  7. Ownership, Contractual Practices and Technical Efficiency: The Case of Urban Public Transport in France By William Roy; Anne Yvrande-Billon
  8. Piracy repression and “Proustian” effects in popular music markets By BECCHETTI LEONARDO; ELEUTERI SIMONE
  9. Games of Connectivity By Pradeep Dubey; Rahul Garg

  1. By: Hend Ghazzai (CES - Centre d'économie de la Sorbonne - [CNRS : UMR8174] - [Université Panthéon-Sorbonne - Paris I], LEGI - [Ecole Polytechnique de Tunisie]); Rim Lahmandi-Ayed (LEGI - [Ecole Polytechnique 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.
    Date: 2006–11–03
  2. By: Brekke, Kjell Arne (The Ragnar Frisch Centre for Economic Research); Rege, Mari (University of Stavanger)
    Abstract: We present a theory of how advertising can break a lock-in by distorting beliefs about market shares in markets with network externalities. On the background of the availability heuristic we assume that people learn about market shares by observing product adoption of others, but are not able to fully distinguish between observations of real people and …ctitious characters in advertisements. We look at a game between an incumbent and an entrant producing close substitutes. Our analysis shows that if the entrant’s product is of su¢ ciently high quality, then the entrant will use advertising in order to break the lock-in and the incumbent will not advertise at all. However, if the quality di¤erential between the two products is small, then the incumbent may advertise and make it unpro…table for the entrant to break the lock-in.
    Keywords: Advertising; availability heuristic; herding behavior; information; lock-in
    JEL: D21 L10 M37
    Date: 2006–11–23
  3. By: Gustavo A. Del Ángel Mobarak
    Abstract: Between 1945 and 1982 a network of interlocking directorates formed at the interior of the Mexican banking system. However, little work has been done to explore its implications. This paper proves that the network among bankers served to transfer information within the financial system and hence to reduce idiosyncratic risks. Using social network analysis with a database of the banks' boards, this paper presents computations of the centrality of the network. Degree and Eigenvalue centrality, used as measures for interconnection among banks, are then contrasted with indicators of financial performance for individual banks using a panel regression technique.
    Date: 2005–06
  4. By: Aija Leiponen
    Abstract: This study examines cooperative standard-setting in wireless telecommunications. Focusing on the competition among firms to influence formal standardization, the roles of standard-setting committees, private alliances, and technical consortia are highlighted. The empirical context is Third Generation Partnership Project (3GPP), an international standards development organization. Panel data analyses suggest that participation in external technical consortia significantly enhance firms’ contributions to the development of new specifications in 3GPP committees. Then, once a firm has become a central player in technical committees, it can further influence the standard-setting outcome through change requests to ongoing specifications. External alliances with fellow 3GPP members may also improve change request success. These results suggest that if firms in network technological industries want to influence the evolution of their industry, they should identify both formal standard-setting committees and external cooperative arrangements in which they can discuss, negotiate, and align positions on technical features with their peers. For policymakers, these results suggest that it is important to ensure that technical consortia remain open for all industry actors and that membership fees do not become prohibitive to small and resource-constraint players.
    Keywords: Standard setting, technology strategy, inter-firm networks
    JEL: L15 L41 L96 O34 O38
    Date: 2006–11–21
  5. By: Roediger-Schluga, Thomas (Department of Technology Policy, ARC systems research); (Department of Technology Policy, ARC systems research)
    Abstract: The promotion of collaborative R&D through Framework Programmes is a top priority of European RTD policy. However, despite the considerable sums involved, surprisingly little is known about the structure of the resulting research networks. Arguing that the underlying technological regime critically affects the structure of collaborative R&D, this article examines the structure and topology of collaborative research networks in the telecommunications and the agro-industrial industry in two specific programmes of the 4th EU Framework Programme. We find systematic differences which we attribute to differences in the underlying knowledge base, the research trajectories pursued in EU-funded R&D and the organisation of knowledge production in the two industries. As expected on the basis of prior research, we show that collaborative research projects involve a larger number of partners and require greater funding in the telecommunications industry, and that actors from science are positioned more prominently in the agro-industrial collaborative R&D network. Contrary to expectations, we find fewer and less intense interactions between science and industry in the agro-industrial industry. We provide a tentative explanation for this result and discuss policy implications.
    Keywords: framework programmes, research collaborations, technological regime, sectoral innovation system, social network analysis, science-industry interactions
    JEL: O33 O38 C69
    Date: 2006
  6. By: Claro, D. P.
    Date: 2006–10
  7. By: William Roy (LET - Laboratoire d'économie des transports - [CNRS : UMR5593] - [Université Lumière - Lyon II] - [Ecole Nationale des Travaux Publics de l'Etat]); Anne Yvrande-Billon (ATOM - Analyse Théorique des Organisations et des Marchés - [Université Panthéon-Sorbonne - Paris I])
    Abstract: This paper investigates the impact of ownership structure and contractual choices on technical efficiency in the French urban public transport sector. The central proposition, which relies on classical contract theory arguments, is that ownership regime and contractual practices are key determinants of performances.<br />To test this proposition, we use an original panel data set covering 135 different French urban transport networks over the period 1995-2002 and we apply a stochastic frontier methodology.<br />The econometric results corroborate our proposition: the technical efficiency of urban public transport operators depends on the ownership regime and on the type of contract governing their transactions.
    Keywords: Contracts ; Contractual Incentives ; Contractual arrangements ; Ownership ; Efficiency ; Performance ; Urban Public Transport ; Public Service Governance
    Date: 2006–10–18
    Abstract: We extend the Gayer-Shy (2005) approach and outline a theoretical model with typical characteristics of contemporary music markets in which record sales and life performances are two fundamental components of industry profits and illegal recording has positive effects on the second source of revenues. We show how (cross-sectional) network externalities and (intertemporal) “Proustian” effects (emotional quasi rents of adult consumers generated by “musical imprinting” when they were young) enhance the conflict of interest on piracy repression between artists and record publishers. Endogenisation of the bargained property right shares and of the penalty for piracy shows that, under reasonable parametric conditions, the absence of piracy repression maximizes total industry profits. We finally show that the conflict of interest on piracy may be solved via diversification of the record publisher revenues through his participation to live performance profits, or entry into the market of new products, such as hardware music players, which are complement to (legal and illegal) downloading.
    Date: 2006–10
  9. By: Pradeep Dubey (Center for Game Theory in Economics, Stony Brook); Rahul Garg (IBM India Research Lab, New Delhi)
    Abstract: We consider a communications network in which users transmit beneficial information to each other at a cost. We pinpoint conditions under which the induced cooperative game is supermodular (convex). Our analysis is in a lattice-theoretic framework, which is at once simple and able to encompass a wide variety of seemingly disparate models.
    Keywords: Information lattice, Multicast/unicast transmission, Cooperative games, Shapley value, Convex/supermodular games
    JEL: C71 D82 L96
    Date: 2006–11

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