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on Network Economics |
| By: | Cerquera Dussán, Daniel |
| Abstract: | This paper studies the incentives to undertake uncertain R&D initiatives in a dynamic duopoly network industry. It is shown that network externalities positively affect the incentives to invest in R&D. In the model, competition resembles a preemption race and, therefore, market performance implies an overinvestment in R&D in comparison with the social optimum. Moreover, network externalities have an important impact in the dynamic evolution of the industry. Although in the long-run a single firm dominates the market (i.e. wins the race), short-run competition is very fierce and concentrated on neck-and-neck technological configurations. This short-run competition is fiercer and longer, the higher the level of network externalities. Policy measures that increase technological diffusion (i.e. mandatory licensing), increase the level of competition and/or prolong the short-run competition have an important positive impact on consumer welfare and on firms’ R&D incentives. |
| Keywords: | Network externalities, Innovation, Imperfect Competition, Dynamic Games |
| JEL: | C73 D85 L13 O31 |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:zewdip:5487&r=net |
| By: | Valletti, Tommaso |
| Abstract: | Mobile telephony is described as a "two-sided" market where customers are seen as senders and receivers of communications that are mutually beneficial both to callers and receivers. This has implications in terms of market definition and market power. The economics of mobile call termination is discussed in this context. |
| Keywords: | mobile telephony; market definition and call termination |
| JEL: | L96 O30 D43 |
| Date: | 2006–03 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:2605&r=net |
| By: | Cerquera Dussán, Daniel |
| Abstract: | This paper analyzes the impact of network externalities on R&D competition between an incumbent and a potential entrant. The analysis shows that the incumbent always invests more than the entrant in the development of higher quality network goods. However, the incumbent exhibits a too low level of investments, while the entrant invests too much in R&D in comparison with the social optimum. In the model entry occurs too often in equilibrium. These inefficiencies are solely due to the presence of network externalities. By choosing compatible network goods, firms do not necessarily reduce the R&D competition intensity. |
| Keywords: | Network externalities, Innovation, Imperfect Competition |
| JEL: | D21 D85 L13 O31 |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:zewdip:5486&r=net |
| By: | Antonio Cabrales; Antoni Calvo-Armengol; Yves Zenou |
| Abstract: | The aim of this paper is to understand the interactions between productive effort and the creation of synergies that are the sources of technological collaboration agreements, agglomeration, social stratification, etc. We model this interaction in a way that allows us to characterize how agents devote resources to both activities. This permits a fullfledged equilibrium/welfare analysis of network formation with endogenous investment efforts and to derive unambiguous comparative statics results. In spite of its parsimony that ensures tractability, the model retains enough richness to replicate a (relatively) broad range of empirical regularities displayed by social and economic networks, and is directly estimable to recover is structural parameters. |
| Date: | 2007–02 |
| URL: | http://d.repec.org/n?u=RePEc:cte:werepe:we072515&r=net |
| By: | Jolian McHardy (Department of Economics, The University of Sheffield); Michael Reynolds; Stephen Trotter |
| Abstract: | The general complexity of demand interrelationships including the co-existence of complements and substitutes make traditional methods of regulating network industries problematic. Collusive pricing is preferred to independent pricing on complementary sections of a network whilst the reverse is true where goods/services are substitutes. However, the costs of market failure in the context of complementary goods, in particular, make appropriate regulatory involvement in such industries all the more important. In this paper, we explore alternative competitive and regulatory strategies within a simple theoretical network with differentiated demands. We show that the employment of an independent profit-maximising agent may offer a partial solution to the problem of network regulation, yielding outcomes which involve all parties pursuing their own interests yet being desirable to both firms and a welfare-maximising social planner. |
| Keywords: | Networks, Regulation, Duopoly, Agent |
| JEL: | D43 L13 R48 |
| Date: | 2007–02 |
| URL: | http://d.repec.org/n?u=RePEc:shf:wpaper:2007004&r=net |
| By: | Cortade, Thomas |
| Abstract: | This paper looks at a new body of literature that deals with two-sided markets and focuses on the Internet Service Provider (ISP) segment. ISPs seem to act as a platform enabling transactions between web sites and end consumers. We propose a strategic guide for ISPs that covers features of two-sided markets such as strong externalities and discuss how these market characteristics can affect competition policy. |
| Keywords: | Platform; externalities; price allocation; competition policy. |
| JEL: | L51 L96 L86 |
| Date: | 2006–03 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:2602&r=net |
| By: | Verdier, Marianne |
| Abstract: | Some retail payment systems can be modelled as two-sided markets, where a payment system facilitates money exchanges between consumers on one side and merchants on the other. The system sets rules and standards, to ensure usage and acceptance of its payment instruments by consumers and merchants respectively. Some retail payment systems exhibit indirect network externalities, which is one of the main criteria used to define two-sided markets. As more consumers use the payment platform, more merchants are encouraged to join it. Conversely, the value of holding payment instruments increases with the number of merchants accepting them. The theory of two-sided markets contributes to a better understanding of these retail payment systems, by showing that an asymmetric allocation of costs is needed to maximise the volume of transactions. It also starts to offer results that could explain competition between payment platforms. However, this theory entails some limits to a thorough understanding of retail payment systems. Firstly, we show that some retail payment systems, such as credit transfer or direct debit systems, do not necessarily fulfil all the theoretical criteria used to define twosided markets. Moreover, this theory does not take into account specific features of the payment industry, such as risk management or fraud prevention. This leads us to propose new research directions. |
| Keywords: | payment systems; two-sided markets; platform competition; payment cards. |
| JEL: | O30 L13 D43 |
| Date: | 2006–03 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:2606&r=net |
| By: | Poudou, J.C.; Roland, M.; Thomas, L. |
| Abstract: | This paper takes into account adverse selection in the implementation of universal service obligations (USOs) for a network industry with no bypass. USOs are characterized by a coverage constraint imposed on the network’s owner. We develop fully the model for a welfare maximizing coverage constraint and explain how to adapt it for a full coverage (ubiquity) constraint. We use a market without USO as a benchmark case. We show that, because of information rents, a sufficiently high shadow cost of public funds can lead to a lower coverage with the USO than without it when firms turn out to be relatively inefficient. If the regulator is able to determine the industry structure by issuing licences to operate, the optimal number of firms reflects a trade-off between allocative efficiency and the industry capacity to finance internally the USO. The shadow cost of public funds then plays a dual role as it determines the terms of this efficiency funding trade-off in addition to the terms of the traditionnal efficiency rent trade-off. |
| Keywords: | universal service obligations, coverage constraints, asymmetric information, regulation |
| JEL: | D82 K23 L43 L51 |
| Date: | 2007 |
| URL: | http://d.repec.org/n?u=RePEc:mop:lasrwp:2007.22&r=net |
| By: | Julia S. Cheney; Sherrie L.W. Rhine |
| Abstract: | This paper describes the characteristics of closed-system and open-system prepaid cards. Of particular interest is a class of open-system programs that offer a set of features similar to conventional deposit accounts using card-based payment applications. The benefits that open-system prepaid cards offer for consumers, providers, and issuing banks contribute to the increased adoption of these payment applications. Using these cards, consumers can pay bills, make purchases, and get cash from ATM networks. At the same time, consumers who hold prepaid cards need not secure a traditional banking relationship nor gain approval for a deposit account or revolving credit. By offering prepaid cards, issuing banks may meet the financial needs of consumers who may not otherwise qualify for more traditional banking products and these banks may do so with a card-based electronic payment application that essentially eliminates credit risk for the bank. |
| Keywords: | Payment systems |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedpdp:06-07&r=net |