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on Network Economics |
| By: | Cabral, Luís M B |
| Abstract: | I consider a dynamic model of competition between two proprietary networks. Consumers die and are replaced with a constant hazard rate. 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. Using a combination of analytical and numerical methods, I discuss various properties of the equilibrium. I show that very small or very large networks tend to price higher than networks of intermediate size. I also show that, around symmetric states, the gap between the large and the small network tends to widen (increasing dominance) whereas the opposite is true (reversion to the mean) around very asymmetric states. |
| Keywords: | dynamic price competition; network effects |
| JEL: | L13 |
| Date: | 2008–02 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:6687&r=net |
| By: | Huck, Steffen; Lünser, Gabriele; Tyran, Jean-Robert |
| Abstract: | Arguing that consumers are the carriers of firms’ reputations, we examine the role of consumer networks for trust in markets that suffer from moral hazard. When consumers are embedded in a network, they can exchange information with their neighbours about their private experiences with different sellers. We find that such information exchange fosters firms' incentives for reputation building and, thus, enhances trust and efficiency in markets. This efficiency-enhancing effect is already achieved with a rather low level of network density. |
| Keywords: | consumer network; information conditions; moral hazard; reputation; trust |
| JEL: | C72 C92 D40 L14 |
| Date: | 2008–01 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:6624&r=net |
| By: | Thomas Kirchmaier; Konstantinos Stathopoulos |
| Abstract: | This paper investigates the relationship between a CEO’s social network, firm identity, and firm performance. There are two competing theories that predict contradictory outcomes. Following social network theory, one would expect a positive relation between social networks and firm performance, while agency theory in general and Bebchuk’s managerial power approach in particular predicts a negative relationship between social networks and firm performance. Based on a new and comprehensive measure of CEOs social networks, we observe for 363 non-financial firms in the UK that the size of a CEO’s social network affects firm performance negatively. Even so, growth companies are actively seeking CEOs with a large social network, which is in line with the social network theory. Still, we find evidence in support of the argument that well-connected CEOs use the power they obtain through their social network to the detriment of shareholders. |
| Date: | 2008–04 |
| URL: | http://d.repec.org/n?u=RePEc:fmg:fmgdps:dp608&r=net |
| By: | Bruno De Borger; Fay Dunkerley; Stef Proost |
| Abstract: | The purpose of this paper is to compare the interaction between pricing and capacity decisions on simple serial and parallel transport networks. When individual links of the network are operated by different regional or national authorities, toll and capacity competition is likely to result. Moreover, the problem is potentially complicated by the presence of both local and transit demand on each link of the network. We bring together and extend the recent literature on the topic and, using both theory and numerical simulation techniques, provide a careful comparison of toll and capacity interaction on serial and parallel network structures. First, we show that there is more tax exporting in serial transport corridors than on competing parallel road networks. Second, the inability to toll transit has quite dramatic negative welfare effects on parallel networks. On the contrary, in serial transport corridors it may actually be undesirable to allow the tolling of transit at all. Third, if the links are exclusively used by transit transport, toll and capacity decisions are independent in serial networks. This does not generally hold in the presence of local transport. Moreover, it contrasts with a parallel setting where regional authorities compete for transit; in that case, regional investment in capacity leads to lower Nash equilibrium tolls. |
| Keywords: | congestion pricing, transport investment, transit traffic |
| JEL: | H23 H71 R41 R48 |
| Date: | 2008–03 |
| URL: | http://d.repec.org/n?u=RePEc:ete:ceswps:ces0617&r=net |
| By: | Hans Degryse; Mark Van Achter; Gunther Wuyts |
| Abstract: | We present a dynamic microstructure model where a dealer market (DM) and a crossing network (CN) interact. We consider sequentially arriving agents having different valuations for an asset. Agents maximize their profits by either trading at a DM or by submitting an order for (possibly) uncertain execution at 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). We find that a CN and a DM cater for different types of traders. Investors with a high eagerness to trade are more likely to prefer a DM. The introduction of a CN increases overall order flow by attracting traders who would not otherwise submit orders (“order creation”). It also diverts trades from the DM. The transparency and “partial” opaqueness settings generate systematic patterns in order flow. With transparency, the probability of observing a CN order at the same side of the market is smaller after such an order than if it was not. Buy (sell) orders at a CN are also less likely to attract subsequent sell (buy) orders at the DM. |
| Date: | 2008–03 |
| URL: | http://d.repec.org/n?u=RePEc:ete:ceswps:ces0415&r=net |
| By: | Daniel Ayalew |
| Abstract: | We apply the set-up of limited commitment model to empirically test the role of informal risk-sharing networks using panel data on informal credit transactions from rural Ethiopia. The empirical estimates provide convincing evidence for the belief that enforcement problem limits the direct role of credit transactions in risk-sharing arrangements between rural households, whether the villages are ethnically homogeneous or not. We also find that households with more land have better access to the informal credit market and access is significantly improved through their participation in small group networks. But the informal credit market and the networks under consideration serve little purpose to the land poor households. These results, therefore, imply that full risk-sharing does not appear to materialize at the village level. |
| Keywords: | Risk-sharing; Limited commitment; Informal credit; Consumption smoothing |
| JEL: | D91 O12 Q12 |
| Date: | 2008–03 |
| URL: | http://d.repec.org/n?u=RePEc:ete:ceswps:ces0305&r=net |