nep-net New Economics Papers
on Network Economics
Issue of 2008‒11‒11
ten papers chosen by
Yi-Nung Yang
Chung Yuan Christian University

  1. Market integration in network industries By MAULEON, Ana; VANNETELBOSCH, Vincent; VERGARI, Cecilia
  2. Compatibility choice in vertically differentiated technologies By GARCIA, Filomena; VERGARI, Cecilia
  3. Blogs and the Economics of Reciprocal Attention By Gaudeul, Alexia; Mathieu, Laurence; Peroni, Chiara
  4. Crime Networks with Bargaining and Build Frictions By Bryan Engelhardt
  5. Collusive networks in market sharing agreements in the presence of an antitrust authority By Flavia Roldán
  6. Empirically Testing for Indirect Network Externalities in the LCD Television Market By Patrick A. Scholten; Jeffrey A. Livingston; David Ortmeyer; Wilson Wong
  7. Does the absence of competition in the market foster competition for the market? A dynamic approach to aftermarkets By LAUSSEL, Didier; RESENDE, Joana
  8. A Retail Benchmarking Approach to Efficient Two-Way Access Pricing: Termination-Based Price Discrimination with Elastic Subscription Demand By Sjaak Hurkens; Doh-Shin Jeon
  9. Competition Policy Issues in the Consumer Payments Industry By Nicholas Economides
  10. Getting Into Networks and Clusters: Evidence on the GNSS composite knowledge process in (and from) Midi-Pyrénées By Jérôme Vicente; Pierre-Alexandre Balland; Olivier Brossard

  1. By: MAULEON, Ana (Université catholique de Louvain (UCL). Center for Operations Research and Econometrics (CORE)); VANNETELBOSCH, Vincent (Université catholique de Louvain (UCL). Center for Operations Research and Econometrics (CORE)); VERGARI, Cecilia (Université catholique de Louvain (UCL). Center for Operations Research and Econometrics (CORE))
    Abstract: What is the effect of product market integration on the market equilibrium in the presence of international network externalities in consumption? To address this question, we set up a spatial two-country model and we find that the economic forces at work may have an ambiguous effect on prices.
    Keywords: compatibility, horizontal differentiation, network effect
    JEL: L13 L15
    Date: 2008–05
  2. By: GARCIA, Filomena (ISEG, Technical University of Lisbon); VERGARI, Cecilia (Université catholique de Louvain (UCL). Center for Operations Research and Econometrics (CORE))
    Abstract: We analyse firms' incentives to provide two-way compatibility between two network goods with different intrinsic qualities. We study how the relative importance of vertical differentiation with respect to the network effect influences the price competition as well as the compatibility choice. The final degree of compatibility allows firms to manipulate the overall differentiation. Under weak network effect, full compatibility may arise: the low quality firm has higher incentives to offer it in order to prevent the rival from dominating the market. Under strong network effect we observe multiple equilibria for consumers' demands. However, in any equilibrium of the full game, coordination takes place on the high quality good which, we assume, always maintains its overall quality dominance.
    Keywords: compatibility, vertical differentiation, network effect.
    JEL: L13 L15
    Date: 2008–03
  3. By: Gaudeul, Alexia; Mathieu, Laurence; Peroni, Chiara
    Abstract: Blogs differ from other media in that authors are usually not remunerated and inscribe themselves in communities of similarly minded individuals. Bloggers value reciprocal attention, interaction with other bloggers and information from reading other blogs; they value being read but also writing itself, irrespective of an audience. A novel dataset from a major blogging community, LiveJournal, is used to verify predictions from a model of social networking. Content production and blogging activity are found to be related to the size and degree of asymmetry of the relational networks in which bloggers are inscribed.
    Keywords: Blog; Internet; Media; Community; Social Network; Reciprocity; Livejournal; Web 2.0
    JEL: L82 Z13 D85
    Date: 2008–10–28
  4. By: Bryan Engelhardt (Department of Economics, College of the Holy Cross)
    Abstract: How does the timing, targets and types of anti-crime policies affect a network when criminal retailers search sequentially for wholesalers and crime opportunities? Given the illicit nature of crime, I analyze a non-competitive market where players bargain over the surplus. In such a market, some anti-crime policies distort revenue sharing, reduce matching frictions and increase market activity or crime. As an application, the model provides a new perspective on why the U.S. cocaine market saw rising consumption after the introduction of the “War on Drugs.”
    Keywords: crime, networks, search, matching
    JEL: C78 K42 L14
    Date: 2008–09
  5. By: Flavia Roldán
    Abstract: This paper studies how the presence of an antitrust authority affects market-sharing agreements made by firms in oligopolistic markets. These agreements prevent firms from entering each other´s market. The set of market-sharing agreements defines a collusive network, which is under suspicion by antitrust authorities. This paper shows that, from the firm´s point of view, the probability of being caught is endogenous and depends on the agreements each firm has signed. Stable collusive networks can be decomposed into a set of isolated firms and complete alliances of different sizes. While in the absence of the antitrust authority, a network is stable if its alliances are large enough, when the antitrust authority is considered, the network is stability depends on the network configuration as a whole. Antitrust laws may have a pro-competitive effect as they give Firms in large alliances more incentives to cut their agreements at once.
    Keywords: Market-sharing, Economic networks, Antitrust authority, Oligopoly
    JEL: D43 K21 L41
    Date: 2008–09
  6. By: Patrick A. Scholten (Bentley University); Jeffrey A. Livingston (Bentley University); David Ortmeyer (Bentley University); Wilson Wong (Bentley University)
    Abstract: This paper examines price data on over 222 LCD televisions to estimate indirect network effects arising from two sources. First, we conjecture that the disconnect between the timing of when broadcasters are required to convert to an only digital-signal world and when television manufacturers were required to have an ATSC digital tuner install on all new televisions has created an indirect network effect whereby television that are backward compatible with the analog QAM and VSB-8 systems have short-run value. Over time, however, we argue that the ATSC digital tuner will become more valuable. The second indirect network effect we estimate stems from the number and types of ports available on LCD televisions. In each case, we find statistically significant evidence for the presence of indirect network effects in the market for LCD televisions.
    Keywords: HDTV, Internet, Connectivity, Compatibility, Indirect Network Externalities
    JEL: L81 L86 M21
    Date: 2008–11
  7. By: LAUSSEL, Didier; RESENDE, Joana (Université catholique de Louvain (UCL). Center for Operations Research and Econometrics (CORE))
    Abstract: In this paper, we investigate dynamic price competition when firms strategically interact in two distinct but interrelated markets: a primary market and an aftermarket, where indirect network effects arise. We set up a differential game of two-dimensional price competition and we conclude that the absence of price competition in the aftermarket (competition in the market) fosters dynamic price competition in the primary market (competition for the market). We also investigate the impact of network sizes on firms' prices in the primary market concluding that, in equilibrium, larger firms have incentives to compete more fiercely for new "uncolonized" consumers.
    Keywords: dynamic competition, differential games, Linear Markov Perfect Equilibrium, aftermarkets, network effects.
    JEL: C61 L11 L13
    Date: 2008–05
  8. By: Sjaak Hurkens (Institute for Economic Analysis (CSIC)); Doh-Shin Jeon (Department of Economics and Business, Universitat Pompeu Fabra)
    Abstract: We study how access pricing affects network competition when consumers' subscription demand is elastic and networks compete with non-linear prices and can use termination-based price discrimination. In the case of a fixed per minute termination charge, our model generalizes the results of Gans and King (2001), Dessein (2003) and Calzada and Valletti (2008). We show that a reduction of the termination charge below cost has two opposing effects: it softens competition and it helps to internalize network externalities. The former reduces consumer surplus while the latter increases it. Firms always prefer termination charge below cost, either to soften competition or to internalize the network effect. The regulator will favor termination below cost only when this boosts market penetration. Next, we consider the retail benchmarking approach (Jeon and Hurkens, 2008) that determines termination charges as a function of retail prices and show that this approach allows the regulator to increase subscription without distorting call volumes. Furthermore, we show that an informed regulator can even implement the first-best outcome by using this approach.
    Keywords: Networks, Access Pricing, Interconnection, Regulation, Telecommunications
    JEL: D4 K23 L51 L96
    Date: 2008–11
  9. By: Nicholas Economides (Stern School of Business, New York University)
    Abstract: We discuss the current structure of card networks that facilitate transactions between merchants and consumers. We find that presently fees for this intermediation are considerably higher than costs. This is facilitated by rules imposed by the card networks on the merchants that do not allow merchants to steer competition to cards that have lower fees. It has also been facilitated by the requirement that a merchant has to accept all cards of the same network (honor all cards rule) -- recently abolished in the US, as well as by the fact that the networks set the maximum interface fee between issuing and acquiring banks. We propose the abolition of anti-steering rules so that merchants are able to pass on card holders the costs of the card they use. This will facilitate inter- and intra-network competition and will improve the competitiveness and efficiency of the market. Classification-L13, L41, L42, L50, L89
    Keywords: card networks, payment systems, anti-steering, surcharge, discrimination, oligopoly, collusion, MasterCard, Visa, American Express, credit card, debit card
    Date: 2008–10
  10. By: Jérôme Vicente; Pierre-Alexandre Balland; Olivier Brossard
    Abstract: This paper aims to contribute to the empirical identification of clusters by proposing methodological issues based on network analysis. We start with the detection of a composite knowledge process rather than a territorial one stricto sensu. Such a consideration allows us to avoid the overestimation of the role played by geographical proximity between agents, and grasp its ambivalence in knowledge relations. Networks and clusters correspond to the complex aggregation process of bi or n-lateral relations in which agents can play heterogeneous structural roles. Their empirical reconstitution requires thus to gather located relational data, whereas their structural properties analysis requires to compute a set of indexes developed in the field of the social network analysis. Our theoretical considerations are tested in the technological field of GNSS (Global Satellite Navigation Systems). We propose a sample of knowledge relations based on collaborative R&D projects and discuss how this sample is shaped and why we can assume its representativeness. The network we obtain allows us to show how the composite knowledge process gives rise to a structure with a peculiar combination of local and distant relations. Descriptive statistics and structural properties show the influence or the centrality of certain agents in the aggregate structure, and permit to discuss the complementarities between their heterogeneous knowledge profiles. Quantitative results are completed and confirmed by an interpretative discussion based on a run of semi-structured interviews. Concluding remarks provide theoretical feedbacks.
    Keywords: Knowledge, Networks, Economic Geography, Cluster, GNSS
    JEL: O32 R12
    Date: 2008–10

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