nep-net New Economics Papers
on Network Economics
Issue of 2008‒01‒05
eight papers chosen by
Yi-Nung Yang
Chung Yuan Christian University

  1. Investment and Usage of New Technologies: Evidence from a Shared ATM Network By Degryse, Hans; Ferrari, Stijn; Verboven, Frank
  2. Oil market structure, network effects and the choice of currency for oil invoicing By Elitza Mileva; Nikolaus Siegfried
  3. The international entrepreneurial firms' social networks By Manuel Portugal Ferreira; Fernando Ribeiro Serra; João Carvalho Santos
  4. Convergence of Beliefs in Bayesian Network Games By Kets, W.
  5. Estimating Demand for Cellular Phone Service under Nonlinear Pricing By Huang, Ching-I
  6. Payment network scale economies, SEPA, and cash replacement By Wilko Bolt; David Humphrey
  7. Dynamic order submission strategies with competition between a dealer market and a crossing network By Hans Degryse; Mark Van Achter; Gunther Wuyts
  8. The Elusive Antitrust Standard on Bundling in Europe and in the United States at the Aftermath of the Microsoft Cases By Nicholas Economides; Ioannis Lianos

  1. By: Degryse, Hans; Ferrari, Stijn; Verboven, Frank
    Abstract: When new technologies become available, it is not only essential that firms have the correct investment incentives, but often also that consumers make the proper usage decisions. This paper studies investment and usage in a shared ATM network. Because all banks coordinate their ATM investment decisions, there is no strategic but only a pure cost-saving incentive to invest. At the same time, because retail fees for cash withdrawals are regulated to zero at both branches and ATMs, consumers may not have the proper incentives to substitute their transactions from branches to the available ATMs. We develop an empirical model of coordinated investment and cash withdrawal demand, where banks choose the number of ATMs and consumers decide whether to withdraw cash at ATMs or branches. We find that banks substantially underinvested in the shared ATM network and thus provided too little geographic coverage. This contrasts with earlier findings of strategic overinvestment in networks with partial incompatibility. Furthermore, we find that consumer usage of the available ATM network is too low because of the zero retail fees for cash withdrawals at branches. A direct promotion of investment (through subsidies or other means) can improve welfare, but the introduction of retail fees on cash withdrawals at branches would be more effective, even if this does not encourage investment per se.
    Keywords: ATM; investment; network; technology
    JEL: L10 O33
    Date: 2007–12
  2. By: Elitza Mileva; Nikolaus Siegfried
    Abstract: A recurring theme in recent years in the debate on the international role of currencies has been the possiblity of pricing oil in euro. This paper contributes to these debates by providing a detailed review of the empirical evidence regarding the market for crude oil and current oil invoicing practices. It introduces a network effect model to identify the conditions under which a parallel invoicing in different currencies would be possible. The paper also includes a simulation designed to illustrate the dynamics of the currency choice of oil invoicing.
    Date: 2007–12
  3. By: Manuel Portugal Ferreira (Instituto Politécnico de Leiria); Fernando Ribeiro Serra (Unisul Business School); João Carvalho Santos (Instituto Politécnico de Leiria)
    Abstract: ABSTRACT This paper investigates theoretically the importance and impact of the international entrepreneurial firms? (IEFs) social networks on selected firms? strategies. We focus specifically on some core attributes of IEFs and the impact of social networks on such strategies as the choice of the foreign markets to operate and the foreign entry modes. The social networks are a major driver of the internationalization from inception and help in overcoming a variety of physical and social resource limitations as well as transactional hazards. We conclude that it is likely that both some fundamental characteristics of the IEFs and those of the foreign markets entered account for these firms reliance on their social networks.
    Keywords: entrepreneurship, international entrepreneurial firms, social networks, internationalization
    JEL: M1
    Date: 2007–12
  4. By: Kets, W. (Tilburg University, Center for Economic Research)
    Abstract: In many contexts, players interact only with a subset of the whole population, i.e., players interact on a network. This paper a setting in which players are located on a network and play a fixed game with their neighbors. Players have incomplete information on the network structure. They have a common prior over the network, and in addition, they know the number of connections they have. That is, their type is their degree. We study the sensitivity of game-theoretic predictions to the specification of players? beliefs. We show that two priors are close in a strategic sense if and only if they assign similar probabilities to all local events, i.e., to all events involving the types of a player and his neighbors. This means that in order to fully explore the range of possible strategic outcomes, it suffices to vary the type distribution and the correlation among player types. On the other hand, it is not enough to vary only the type distribution, which has been the focus of much of the literature so far.
    Keywords: Network games;incomplete information;payoff continuity
    JEL: C72 D83 L14 Z13
    Date: 2007
  5. By: Huang, Ching-I
    Abstract: Cellular phone carriers typically offer complicated nonlinear tariffs. Consumers make a discrete choice among several rate plans. Each plan has a nonlinear price schedule, and price is usually lower for in-network calls. I present an empirical framework to estimate demand under such nonlinear pricing schemes by using parsimonious data and apply the estimation method to analyze the cellular phone service market in Taiwan. Based on the estimated model, I evaluate the impacts of termination-based pricing schemes on the market structure. While the existence of in-network discounts causes considerable tipping effects on market shares, the effects come primarily from reducing the average prices, not from the difference between in-network and off-network prices. There is no evidence showing that termination-based pricing by itself has significant effects on market structure.
    Keywords: termination-based price discrimination; optional rate plans; cellular phone service; structural estimation
    JEL: L96 L11 C35 L15
    Date: 2007–10
  6. By: Wilko Bolt; David Humphrey
    Abstract: The goal of SEPA (Single Euro Payments Area) is to facilitate the emergence of a competitive, intra-European market by making cross-border payments as easy as domestic transactions. With crossborder inter-operability for electronic payments, card transactions will increasingly replace cash and checks for all types of payments. Using different methods, the authors estimate card and other payment network scale economies for Europe. These indicate substantial cost efficiency gains if processing is consolidated across borders rather than "piggybacked" onto existing national operations. Cost reductions likely to induce greater replacement of small value cash transactions are also illustrated.
    Date: 2007
  7. By: Hans Degryse (CentER, Tilburg University; University of Leuven); Mark Van Achter (University of Bonn); Gunther Wuyts (University of Leuven; National Bank of Belgium, Research Department)
    Abstract: We present a dynamic microstructure model where a dealer market (DM) and a crossing network (CN) interact. Sequentially arriving traders with different valuations for an asset maximise their profits either by trading on a DM or by submitting an order for (possibly) uncertain execution via a CN. We develop the analysis for three different informational settings: transparency, "complete" opaqueness of all order flow, and "partial" opaqueness (with observable DM trades). A key result is that the interaction of trading systems generates systematic patterns in order flow for the transparency and partial opaqueness settings. The precise nature of these patterns depends on the degree of transparency at the CN. While unambiguous with a transparent CN, they may reverse direction if the CN is opaque. Moreover, in all three informational settings, we find that a CN and a DM cater for different types of traders. Investors with a high willingness to trade are more likely to prefer a DM. The introduction of a CN next to a DM also affects welfare as it increases total order flow by attracting traders who would otherwise not submit orders ("order creation"); in addition, it diverts trade from the DM ("trade diversion"). We find that the coexistence of a CN and DM produces more trader welfare than a DM in isolation. Also, more transparent markets lead to greater trader welfare but may reduce overall welfare.
    Keywords: alternative trading systems, crossing network, dealer market, order flow, transparency, welfare
    JEL: G10 G20
    Date: 2007–12
  8. By: Nicholas Economides (Stern School of Business, New York University); Ioannis Lianos (University College London, Faculty of Laws)
    Abstract: We analyze and contrast the US and EU antitrust standards on mixed bundling and tying. We apply our analysis to the US and EU cases against Microsoft on the issue of tying new products (Internet Explorer in the US, and Windows Media Player in the EU) with Windows as well as to cases brought in Europe and in the United States on bundling discounts. We conclude that there are differences between the EC and US antitrust law on the choice of the relevant analogy for bundled rebates (predatory price standard or foreclosure standard) and the implementation of the distinct product and coercion test for tying practices. The second important difference between the two jurisdictions concerns the interpretation of the requirement of anticompetitive foreclosure. It seems to us that in Europe, consumer detriment is found easily and it is not always a requirement for the application of Article 82, or at least that the standard of proof of a consumer detriment for tying cases is lower than in the US.
    Keywords: tying, bundling, foreclosure, requirement contracts, monopolization, Microsoft, predatory pricing
    JEL: K12 L12 L13 L41 L42 L63
    Date: 2007–12

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