nep-net New Economics Papers
on Network Economics
Issue of 2007‒06‒11
five papers chosen by
Yi-Nung Yang
Chung Yuan Christian University

  1. Dynamic Price Competition with Network Effects By Luís Cabral
  2. Radical Innovation and Network Evolution By Sandra Phlippen; Massimo Riccaboni
  3. Socioeconomic Networks with Long-Range Interactions By Rui Carvalho; Giulia Iori; Rui Carvalho
  4. Contractually Stable Networks By Jean-Francois Caulier; Ana Mauleon; Vincent VAnnetelbosch
  5. Directed Networks with Global Spillovers By Sudipta Sarangi; Pascal Billand; Christophe Bravard

  1. By: Luís Cabral (New York University)
    Abstract: I consider a dynamic model of competition between two proprietary networks. Consumers die with a constant hazard rate and are replaced by new consumers. Firms compete for new consumers to join their network by offering network entry prices (which may be below cost). New consumers have a privately known preference for each network. Upon joining a network, in each period consumers enjoy a benefit which is increasing in network size during that period. Firms receive revenues from new consumers as well as from consumers already belonging to their network. I discuss various properties of the equilibrium, including the pricing function, the system’s expected motion, and the stationary distribution of market shares. I derive several results analytically. I then confirm and extend these results by numerical computation. Finally, I use the model to estimate the barrier to entry create by network effects.
    Date: 2007–04
  2. By: Sandra Phlippen (Erasmus Universiteit Rotterdam); Massimo Riccaboni (University of Florida)
    Abstract: This paper examines how a radical technological innovation affects alliance formation of firms and subsequent network structures. We use longitudinal data of interfirm R&D collaborations in the biopharmaceutical industry in which a new technological regime is established. Our findings suggest that it requires radical technological change for firms to leave their embedded path of existing alliances and form new alliances with new partners. While new partners are mostly found through the firms’ existing network, we provide some insight into distant link formation with unknown partners, which contributes to our understanding of how ‘small-worlds’ might emerge.
    Keywords: Pharmaceutical industry; Biotechnology industry; R&D; Technological change; Alliances; Networks
    JEL: O32 O31 L14 L24 M13 M21
    Date: 2007–05–10
  3. By: Rui Carvalho (University College London); Giulia Iori (Department of Economics, City University, London); Rui Carvalho
    Abstract: In well networked communities, information is often shared informally among an individual’s direct and indirect acquaintances. Here we study a modified version of a model previously proposed by Jackson and Wolinsky to account for communicating information and allocating goods in socioeconomic networks. The model defines a utility function of node i which is a weighted sum of contributions from all nodes accessible from i. First, we show that scale-free networks are more efficient than Poisson networks for the range of average degree typically found in real world networks. We then study an evolving network mechanism where new nodes attach to existing ones preferentially by utility. We find the presence of three regimes: scale-free (rich-get-richer), fit-get-rich, and Poisson degree distribution. The fit-get-rich regime is characterized by a decrease in average path length.
    Date: 2007–06
  4. By: Jean-Francois Caulier; Ana Mauleon; Vincent VAnnetelbosch
    Date: 2007–06–02
  5. By: Sudipta Sarangi; Pascal Billand; Christophe Bravard
    Abstract: This paper examines directed networks in which the payoff of a player depends on the total number links formed by her and the other players. After showing that these networks with global spillovers may not always have Nash equilibria in pure strategies, we introduce two additional properties for the payoff function. The first called increasing (or decreasing) difference property states that player i’s payoff increases (decreases) as the number of links between the other n - 1 players increases. The second condition called the strict smaller midpoint property imposes a monotonicity restriction on the payoff function. We show that pure strategy Nash networks always exist under both conditions. The paper then characterizes these Nash equilibria showing that symmetric networks play a crucial role.

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