nep-net New Economics Papers
on Network Economics
Issue of 2007‒03‒17
nine papers chosen by
Yi-Nung Yang
Chung Yuan Christian University

  1. Entry into a network industry: consumers’ expectations and firms’ pricing policies By Angelo Baglioni
  2. On the information value of (un)embedded network ties By Hagedoorn John; Letterie Wilko; Palm Franz
  3. A Methodology for Assessing Eco-efficiency in Logistics Networks By Quariguasi Frota Neto, J.; Walther, G.; Bloemhof-Ruwaard, J.M.; Nunen, J.A.E.E van; Spengler, T.
  4. Le système d’innovation de Benetton et ses limites By Giovanni Favero
  5. The Strategic Justification for BGP By Levin, Hagay; Schapira, Michael; Zohar, Aviv
  6. Inter-firm technology transfer: Partnership-embedded licensing or standard licensing agreements? By Hagedoorn, John; Lorenz-Orlean, Stefanie; Kranenburg, Hans
  7. Discrete Choices under Social Influence: Generic Properties By Mirta B. Gordon; Jean-Pierre Nadal; Denis Phan; Viktoriya Semeshenko
  8. India: a Case of Fragile Wireless Service and Technology Adoption? By Pau, L-F.; Motiwalla, J.
  9. Too Expensive to Meter: The influence of transaction costs in transportation and communication By David Levinson; Andrew Odlyzko

  1. By: Angelo Baglioni (DISCE, Università Cattolica)
    Abstract: This paper presents a model of entry into a network industry. The entrant tries to attract the customer base of the incumbent service provider. While the entrant is more efficient, the incumbent enjoys an advantage thanks to a bias in consumers’ expectations. Buyers enter the game with heterogenous beliefs as to which of the two firms is going to win competition. Then expectations converge - through higher order beliefs - and select one winner, who ends up being the single supplier. The path of expectations convergence crucially depends on the pricing policy followed by firms: so equilibrium beliefs are endogenous. Depending on parameter values, one of two outcomes obtains: (i) the incumbent is able to exclude the entrant, by lowering his price below the monopoly level; (ii) the entrant is successful, by undercutting the incumbent price. Productive efficiency and consumers’ welfare are hurt by exclusion; the entry threat is beneficial to consumers anyway. Imposing compatibility among networks is welfare improving, as it removes the exclusionary potential enjoyed by the incumbent.
    Keywords: network industries, critical mass, entry, exclusion, higher order beliefs
    JEL: D42 D84 L12 L41
    Date: 2006–11
  2. By: Hagedoorn John; Letterie Wilko; Palm Franz (METEOR)
    Abstract: A firm sets up a network of information generating alliances to reduce technological uncertainty. This alliance group creates both advantages associated with similarity of existing partners and limitations due to restricted choice of new partners. Our model analyses the conditions (technological uncertainty, information overlap, alliance search costs, and the number of previous alliances) under which a firm opts for an embedded tie within an existing network or an unembedded tie with a new partner.
    Keywords: Strategy;
    Date: 2007
  3. By: Quariguasi Frota Neto, J.; Walther, G.; Bloemhof-Ruwaard, J.M.; Nunen, J.A.E.E van; Spengler, T. (Erasmus Research Institute of Management (ERIM), RSM Erasmus University)
    Abstract: Recent literature on sustainable logistics networks points to two important questions: (i) How to spot the preferred solution(s) balancing environmental and business concerns? (ii) How to improve the understanding of the trade-offs between these two dimensions? We posit that a complete exploration of the efficient frontier and trade-offs between profitability and environmental impacts are particularly suitable to answer these two questions. In order to deal with the exponential number of basic efficient points in the frontier, we propose a formulation that performs in exponential time for the number of objective functions only. We illustrate our findings by designing a complex recycling logistics network in Germany.
    Keywords: Recycling logistics network;Environmental impacts;Profitability;Eco-efficiency;
    Date: 2006–10–20
  4. By: Giovanni Favero
    Abstract: This paper focuses on the innovation system in the Benetton case: on the one hand, it puts in evidence the ability of the company in exploiting institutional conditions in order to develop a network organisation and a series of coordinated innovations; on the other hand, it investigates on the characteristics of the circulation of innovation among Benetton suppliers and distributors. The paper was presented at the conference Les systèmes d’innovations: multiplicité des échelles, diversité des espaces, Bordeaux, Maison de Sciences de l’Homme d’Aquitaine, November 16-17, 2006.
    Keywords: Innovation, network firm, industrial policies.
    JEL: N84 N44 N64
  5. By: Levin, Hagay; Schapira, Michael; Zohar, Aviv
    Abstract: The Internet consists of many administrative domains, or \emph{Autonomous Systems} (ASes), each owned by an economic entity (Microsoft, AT\&T, The Hebrew University, etc.). The task of ensuring interconnectivity between ASes, known as \emph{interdomain routing}, is currently handled by the \emph{Border Gateway Protocol} (BGP). ASes are self-interested and might be willing to manipulate BGP for their benefit. In this paper we present the strategic justification for using BGP for interdomain routing in today's Internet: We show that, in the realistic Gao-Rexford setting, BGP is immune to almost all forms of rational manipulation by ASes, and can easily be made immune to all such manipulations. The Gao-Rexford setting is said to accurately depict the current commercial relations between ASes in the Internet. Formally, we prove that a slight modification of BGP is incentive-compatible in \emph{ex-post Nash equilibrium}. Moreover, we show that, if a certain reasonable condition holds, then this slightly modified BGP is also \emph{collusion-proof} in ex-post Nash -- i.e., immune to rational manipulations even by \emph{coalitions} of \emph{any} size. Unlike previous works on achieving incentive-compatibility in interdomain routing, our results \emph{do not require any monetary transfer between ASes} (as is the case in practice). We also strengthen the Gao-Rexford constraints by proving that one of the three constraints can actually be enforced by the rationality of ASes if the two other constraints hold.
    Keywords: Networks; Ex post Nash; Routing; rational manipulation; Border Gateway Protocol; Dispute Wheel
    JEL: D8 D7 D85
    Date: 2006–11–20
  6. By: Hagedoorn, John (UNU-MERIT and University of Maastricht); Lorenz-Orlean, Stefanie (University of Maastricht); Kranenburg, Hans (Radboud University Nijmegen)
    Abstract: When companies decide to engage in technology transfer through licensing to other firms, they have two basic options: to use standard licensing contracts or to set-up more elaborate partnership-embedded licensing agreements. We find that broader partnership-embedded licensing agreements are preferred with higher levels of technological sophistication of industries, with greater perceived effectiveness of secrecy as a means of appropriability, and when licensors are smaller than their licensees. Innovative differentials between companies, innovative supremacy of the licensor, and market and technological overlap between partners appear to have no effect on the preference for a particular form of licensing.
    Keywords: technology transfer, licensing, inter-firm partnership, innovation
    JEL: O31 O34 D74
    Date: 2007
  7. By: Mirta B. Gordon (TIMC - IMAG - Techniques de l'Imagerie, de la Modélisation et de la Cognition - [CNRS : UMR5525] - [Université Joseph-Fourier - Grenoble I][Institut National Polytechnique de Grenoble - INPG]); Jean-Pierre Nadal (CAMS - Centre d'analyse et de mathématique sociale - [CNRS : UMR8557] - [Ecole des Hautes Etudes en Sciences Sociales], LPS - Laboratoire de Physique Statistique de l'ENS - [CNRS : UMR8550] - [Université Pierre et Marie Curie - Paris VI][Université Denis Diderot - Paris VII] - [Ecole Normale Supérieure de Paris]); Denis Phan (CREM - Centre de Recherche en Economie et Management - [CNRS : UMR6211] - [Université Rennes I][Université de Caen], GEMAS - Groupe d'étude des méthodes de l'analyse sociologique - [CNRS : UMR8598] - [Université Paris-Sorbonne - Paris IV]); Viktoriya Semeshenko (TIMC - IMAG - Techniques de l'Imagerie, de la Modélisation et de la Cognition - [CNRS : UMR5525] - [Université Joseph-Fourier - Grenoble I][Institut National Polytechnique de Grenoble - INPG])
    Abstract: We consider a model of socially interacting individuals that make a binary choice in a context of positive additive endogenous externalities. It encompasses as particular cases several models from the sociology and economics literature. We extend previous results to the case of a general distribution of idiosyncratic preferences, called here Idiosyncratic Willingnesses to Pay (IWP).<br /><br />Positive additive externalities yield a family of inverse demand curves that include the classical downward sloping ones but also new ones with non constant convexity. When $j$, the ratio of the social influene strength to the standard deviation of the IWP distribution, is small enough, the inverse demand is a classical monotonic (decreasing) function of the adoption rate. Even if the IWP distribution is mono-modal, there is a critical value of $j$ above which the inverse demand is non monotonic, decreasing for small and high adoption rates, but increasing within some intermediate range. Depending on the price there are thus either one or two equilibria.<br /><br />Beyond this first result, we exhibit the {\em generic} properties of the boundaries limiting the regions where the system presents different types of equilibria (unique or multiple). These properties are shown to depend {\em only} on qualitative features of the IWP distribution: modality (number of maxima), smoothness and type of support (compact or infinite).<br />The main results are summarized as {\em phase diagrams} in the space of the model parameters, on which the regions of multiple equilibria are precisely delimited.
    Keywords: discrete choice; social influence; externalities; heterogeneous agents; socioeconomic behavior
    Date: 2007–03–07
  8. By: Pau, L-F.; Motiwalla, J. (Erasmus Research Institute of Management (ERIM), RSM Erasmus University)
    Abstract: Wireless penetration and the Indian economy have grown significantly over the past few years, but how robust and sustainable is the adoption of wireless services and products? Several papers have discussed India as a wireless service and product market, and sometimes tried to assess quantitative attributes thereof. The present paper aims instead at looking, from a management point of view, at the unique underlying evolution processes, bottlenecks and risks. On specific facets, a comparison is given to adoption indicators in other key markets such as China. For example, just to illustrate highlights of these unique attributes , it is indeed surprising that such a major economy with its very large population has not yet achieved the wireless service usage and mobile terminal penetration ratios of neither an early European adopter ,nor of a recent large scale adopter like China or Russia . India has also been characterised by a surprising regulatory development process quite different from many other contexts, both in terms of its both centralised and regional structure, of very low tariffs providing almost no ROI to investors in a stable situation, and of absence of neutrality across communications technologies. At the same time, a very large fraction of the population has not , for affordability and regional coverage reasons, been able to get the access opportunities of more developed regions , leading to a distribution unbalance which is also a significant opportunity .Also , the wireless service and product adoption pattern in India , specific to communicating services , has so far been in rather sharp contrast with the widely known software and outsourcing services industry evolutions in that country . Therefore it is important to compare the most relevant known wireless service and product adoption theories, to establish from facts whether they apply in the Indian context, and, if not, suggest new or mixed theories able to explain all such facts and cast some light into its likely future structural evolution. It is of high relevance in management to validate if indeed established models apply or not in a significant case like India, just as it is also of high relevance for the main stakeholders to identify methodology able to support their analyses. The paper first provides background information on wireless, fixed, and other operators, on wireless penetration, on telecommunications infrastructure and investments, and on Indian human capital. Thereafter is analyzed in detail the relevance, or not, of five traditional technology adoption models across the Indian user base: the absorption business model, the perceived benefits business model, consumer attitudes, the globalisation business model, and finally the brand management business model. These first analyses are followed by the identification and detailed analysis of five other business models or structural processes, some rather unique to India: the two-tier migration model, large scale imported adoption without a telecommunications infrastructure & terminals industry, unstable adoption with lack of consistent public policies, knowledge sharing and productivity enhancement adoption model, and finally late foreign capital investments into a large emerging market. From the comparison of facts and background data , with these ten wireless service and product adoption models , the paper establishes which are not relevant, and which are too some degree . Furthermore the relevant business models are shown to share, further attributes of sustainability (or not) and dynamic behaviour. This allows concluding that India has had an overall quite fragile adoption and deployment path with growing tensions such as coverage, quality of service and affordability disparities. The model comparison also allows to diagnose the key three structural measures needed to reach a sustainable equilibrium from the business, economic and social points of view.
    Keywords: India;Mobile communications;Manufacturing;Economic development;Business models;Adoption;Wireless;Infrastructure;Mobile terminals;;
    Date: 2007–02–17
  9. By: David Levinson (Nexus (Networks, Economics, and Urban Systems) Research Group, Department of Civil Engineering, University of Minnesota); Andrew Odlyzko (Digital Technology Center, University of Minnesota)
    Abstract: Technology appears to be making fine-scale charging (as in tolls on roads that depend on time of day or even on current and anticipated levels of congestion) increasingly feasible. And such charging appears to be increasingly desirable, as traffic on roads continues to grow, and costs and public opposi- tion limit new construction. Similar incentives towards fine-scale charging also appear to be operating in communications and other areas, such as electricity usage. Standard economic theory supports such measures, and technology is being developed and deployed to implement them. But their spread is not very rapid, and prospects for the future are uncertain. This paper presents a collection of sketches, some from ancient history, some from current developments, that illustrate the costs that charging imposes. Some of those costs are explicit (in terms of the monetary costs to users, and the costs of implementing the charging mechanisms). Others are implicit, such as the time or the mental processing costs of users. These argue that the case for fine-scale charging is not unambiguous, and that in many cases may be inappropriate.
    Keywords: transportation, communication, transaction costs, collection costs
    JEL: R40 R41 R48 N7 N9 H4
    Date: 2007–02

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