nep-net New Economics Papers
on Network Economics
Issue of 2008‒11‒25
eight papers chosen by
Yi-Nung Yang
Chung Yuan Christian University

  1. Economic Aspects of the Microsoft Case: Networks, Interoperability and Competition By Maria J. Gil-Moltó
  2. Compatibility choice in vertically differentiated technologies By GARCIA, Filomena; VERGARI, Cecilia
  3. Market integration in network industries By MAULEON, Ana; VANNETELBOSCH, Vincent; VERGARI, Cecilia
  4. Asymmetric Network Effects By Estelle Cantillon; Pai-Ling Yin;
  5. Network Effects in a Human Capital Based Economic Growth Model By Teresa V. Martins; Tanya Araújo; Maria A. Santos; Miguel St Aubyn
  6. A network of business relations to model counterparty risk By Diana Barro; Antonella Basso
  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. Network Economies in Indian Telecom By Chepuri Shri Krishna, Tikiya Vibhor

  1. By: Maria J. Gil-Moltó
    Abstract: In this paper, we discuss the main economic aspects of the European Microsoft case; in particular, Microsoft’s refusal to supply the necessary information to make the competitors’ work group server systems interoperable with Windows Operating System. The case can be seen as an example of competition between networks. We review the relevant economics literature with the objective of understanding the motivations behind Microsoft’s strategies.
    Keywords: Networks; Complementarities; Foreclosure; Interoperability; Antitrust
    JEL: L4 O3 L1
    Date: 2008–11
  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: 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
  4. By: Estelle Cantillon (ECARES, Université Libre de Bruxelles); Pai-Ling Yin (MIT Sloan School of Management);
    Abstract: When platforms compete for consumers, two types of consumer heterogeneity will matter: consumers value the presence of other consumers on a platform differently, and consumers contribute to the value of the platform differently. The optimal discriminatory pricing policy for platforms will depend on whether those two dimensions of consumer heterogeneity are positively or negatively correlated, which is an empirical question. In a companion paper (Cantillon & Yin, 2008), we study membership decisions of trading firms for two competing exchanges: LIFFE and DTB. Our analysis shows that different traders care about liquidity differently. In this paper, we estimate the heterogeneous contribution to liquidity by different types. We combine the estimates from both papers of heterogeneous preferences and contributions to liquidity. We find that valuations of liquidity tend to be correlated with contributions to liquidity in this setting.
    Keywords: derivatives exchange, network effects, heterogeneity, entry strategy, adoption, liquidity, platform competition
    JEL: L1 G15
    Date: 2008–11
  5. By: Teresa V. Martins; Tanya Araújo; Maria A. Santos; Miguel St Aubyn
    Date: 2008–09
  6. By: Diana Barro (Department of Applied Mathematics, University of Venice); Antonella Basso (Department of Applied Mathematics, University of Venice)
    Abstract: This contribution presents a network of interdependent firms in which the spatial diffusion of the business relations is described by an entropy spatial interaction model. This network is used in a credit risk model in order to take into account the counterparty risk and describe the resulting contagion effects.
    Keywords: credit risk contagion, networks, counterparty risk, entropy spatial models
    JEL: D61 C63
    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: Chepuri Shri Krishna, Tikiya Vibhor
    Keywords: Network Economies, Telecom, India, Performance, Scale, Scope, Consumer Surplus, Utilities, Firm-Strategies
    Date: 2007–12–28

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