nep-net New Economics Papers
on Network Economics
Issue of 2008‒04‒15
five papers chosen by
Yi-Nung Yang
Chung Yuan Christian University

  1. The economics of networks - A survey of the empirical literature By Daniel Birke
  2. Network Structure in a Link-formation Game: An Experimental Study By Alexander Elbittar; Rodrigo Harrison; Roberto Muñoz
  3. World City Network Expansion 2000-2004. An appraisal of the determinants of connectivity growth among world cities By Renato Aristides Orozco Pereira
  4. Mergers in Two-Sided Markets: An Application to the Canadian Newspaper Industry By Chandra, Ambarish; Collard-Wexler, Allan
  5. A structure theorem for graphs with no cycle with a unique chord and its consequences. By Nicolas Trotignon; Kristina Vuskovic

  1. By: Daniel Birke
    Abstract: Network effects, the increase in value of consuming a product if many other consumers use the same product, is a feature of many markets of high-technology products. Frequently cited examples of products exhibiting network effects are telecommunication or software products. This paper surveys the burgeoning empirical literature that has developed especially during the last years. After theoretical work dominated the earlier years of research in this area, newer research has combined theoretical models with empirical studies and applied work with direct implications for marketing and public policy. Furthermore, insights from the study of social networks have been applied to analyse how consumers interact with each other. The paper argues that a closer analysis of the network structure of consumer interaction promises fruitful future research avenues and advances in our understanding of how network effects operate.
    Keywords: network effects, social networks, structural models
    Date: 2008–04–04
  2. By: Alexander Elbittar; Rodrigo Harrison (Instituto de Economía. Pontificia Universidad Católica de Chile.); Roberto Muñoz
    Abstract: Network formation is frequently modeled using link-formation games and typically present a multiplicity of Nash equilibria. Cooperative refinements - such as strong or coalitional proof Nash equilibria - have been the standard tool used for equilibrium selection in these games. Non-cooperative refinements derived from the theory of global games have shown also that, for a class of payo¤ functions, multiplicity of equilibria disappears when the game is perturbed by introducing small amounts of incomplete information. We conducted a laboratory study evaluating the predictive power of each of these refinements in an illustrative link-formation game. Compared with cooperative game solutions, the global game approach did significantly better at predicting the strategies played by individuals in the experiment.
    Keywords: Networks, Global Games, Cooperative Games, Equilibrium Selection, Experimental economics.
    JEL: C70 C92 D20 D44 D82
    Date: 2008
  3. By: Renato Aristides Orozco Pereira
    Abstract: The term “globalization” has long been vented indiscriminately everywhere with few being capable to either define or measure it. Cities are said to be at the forefront of the “works of globalization” by becoming coordinating centers for the transnational activities of multinational corporations. Ultimately, they become tied up to each other, as those activities require information inputs from different regions of the world. The article uses the advanced corporate service firms’ location patterns to measure the linkages between cities. As social, economical, cultural and political information about the cities flow through the firms’ network of branch offices, a highly connected city provides better corporate servicing to businessman wanting to do business elsewhere. By calculating the total connectivity of each city to the rest of the world, as well as total presence of global service firms within these cities, in the years 2000 and 2004, we produce a measure of the connectivity growth in the period. In a second moment, we use a linear regression model to test hypothesis concerning the determinants of connectivity growth in those cities. Results show us that connectivity growth in a city, in case of firm’s network expansion, display a “rich-get-rich” behavior on which well connected cities became even more connected. Furthermore, connectivity growth is responsive to competition, agglomeration economies, infrastructure, trade openness, human capital and the overall economic level of the country. Some of the variables behave differently according to the service firms’ sector being analyzed. In particular, we scrutinize the role of human capital as a determinant of connectivity growth in the management and banking sector, and interpret the results as a function of whether the sector is skilled-labor intensive (management) or capital intensive (banking).
    Keywords: Globalization, World City Network, Interlock Network Model, Global City Model, Economic Geography, GaWC
    Date: 2008–04
  4. By: Chandra, Ambarish; Collard-Wexler, Allan
    Abstract: In this paper we study mergers in two-sided industries. While mergers have been studied extensively in traditional industries, and there is a large and rapidly evolving literature on two-sided markets, there has been little work empirically examining mergers in these markets. We present a model that shows that mergers in two-sided markets may not necessarily lead to higher prices for either side of the market. We test our conclusions by examining a spate of mergers in the Canadian newspaper industry in the late 1990s. Specifically, we analyze prices for both circulation and advertising to try to understand the impact that these mergers had on consumer welfare. We find that greater concentration did not lead to higher prices for either newspaper subscribers or advertisers.
    Keywords: Mergers; Two-Sided Markets; Newspapers
    JEL: D43 L4
    Date: 2008–03
  5. By: Nicolas Trotignon (Centre d'Economie de la Sorbonne); Kristina Vuskovic (University of Leeds)
    Abstract: We give a structural description of the class C of graphs that do not contain a cycle with a unique chord as an induced subgraph. Our main theorem states that any connected graph in C is a either in some simple basic class or has a decomposition. Basic classes are cliques, bipartite graphs with one side containing only nodes of degree two and induced subgraph of the famous Heawood or Petersen graph. Decompositions are node cutsets consisting of one or two nodes and edge cutsets called 1-joins. Our decomposition theorem actually gives a complete structure theorem for C, i.e. every graph in C can be built from basic graphs that can be explicitly constructed, and gluing them together by prescribed composition operations ; and all graphs built this way are in C. This has several consequences : an O(nm)-time algorithm to decide whether a graph is in C, an O(n+m)-time algorithm that finds a maximum clique of any graph in C and an O(nm)-time coloring algorithm for graphs in C. We prove that every graph in C is either 3-colorable or has a coloring with ? colors where ? is the size of a largest clique. The problem of finding a maximum stable set for a graph in C is known to be NP-hard.
    Keywords: Cycle with a unique chord, decomposition, structure, detection, recognition, Heawood graph, Petersen graph, coloring.
    Date: 2008–03

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