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on Network Economics |
| By: | Herings P. Jean-Jacques; Peeters Ronald; Yang Michael (METEOR) |
| Abstract: | In this paper, we consider the competition of providers of information products against P2P networks that offer illegal versions of the information products. Depending on the generic cost factor of downloading—incorporating factors including, among other things, the degree of legal enforcement of intellectual property rights—we find that the firm may employ pricing strategies to either deter the entry of a network or to accommodate it. In the latter case, we find that the equilibrium price moves in the opposite direction of the generic cost factor of downloading. This counter-intuitive result corresponds to a very subtle form of platform competition between the firm and the network. Furthermore, profits for the firm ambiguously decrease when the generic cost factor of downloading declines, whereas total welfare unambiguously increases. This implies that it may well be welfare enhancing to relax the legal enforcements of intellectual property rights. |
| Keywords: | Strategy; |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:umamet:2008020&r=net |
| By: | Christian Ghiglino; Sanjeev Goyal |
| Abstract: | We consider a world in which individuals have private endowments and trade in markets, while their utility is sensitive to the consumption of their neighbors. Our interest is in understanding how social structure of comparisons, taken together with the familiar fundamentals of the economy – endowments, technology and preferences – shapes equilibrium prices, allocations and welfare. We find that equilibrium prices and allocations depend on average individual centrality in the social network. As we add links to a social network, the centralities rise and this pushes up prices of the socially sensitive good. Newly linked agents demand more of the socially sensitive good, while the reverse happens with regard to the standard good. We derive a formula to compute the critical link, i.e., the new link which maximizes price increase. We then turn to a model with heterogenous endowments, and find that inequality in network centrality and in wealth inequality reinforce each other. Thus a transfer of resources from less to more central agents raises prices of the socially sensitive good and alters allocations and utilities of all agents. We show by example that poor individuals lose utility while rich individuals gain utility as society moves from segregation to integration. |
| Date: | 2008–06–30 |
| URL: | http://d.repec.org/n?u=RePEc:esx:essedp:655&r=net |
| By: | Anne L. J. ter Wal (Urban and Regional Research Centre (URU)) |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:fce:doctra:0821&r=net |
| By: | Michiel Bijlsma; Viktória Kocsis; Nelli Valmari |
| Abstract: | In most European broadband Internet markets local loop unbundling is mandated under a cost-based regulated access price. We construct a model for differentiated Cournot competition between service-based and infrastructure-based firms, out of which one infrastructure-based firm (the incumbent) supplies to the service-based firms. We seek for and compare the socially optimal and the incumbent’s profit maximizing access price in two scenarios: (i) service-based firms and incumbent supply homogeneous services (partial differentiation), and (ii) all services are horizontally differentiated (uniform differentiation). We show that in both cases the incumbent never forecloses service-based firms if infrastructure-based competition is present or if services are somewhat differentiated. Under uniform differentiation the welfare optimizing access price is below marginal cost, hence the incumbent subsidizes the production of service-based firms and makes zero profit. In the case of partial differentiation, the same result obtains when both markets are concentrated. However, if markets are not concentrated, the socially optimal access fee exceeds the marginal cost. |
| Keywords: | broadband Internet market; imperfect competition; product differentiation; access regulation |
| JEL: | L13 L51 L86 L96 |
| Date: | 2008–06 |
| URL: | http://d.repec.org/n?u=RePEc:cpb:discus:106&r=net |