nep-net New Economics Papers
on Network Economics
Issue of 2009‒06‒03
seven papers chosen by
Yi-Nung Yang
Chung Yuan Christian University

  1. Why Blu-ray vs. HD-DVD is not VHS vs. Betamax: The Co-evolution of Standard-setting Consortia By Julian P. Christ; André P. Slowak
  2. Matching and network effects By Marcel Fafchamps; Marco van der Leij; Sanjeev Goyal
  3. On the Problem of Network Monopoly By Jolian McHardy; Michael Reynolds; Stephen Trotter
  4. The Random Part in Network Evolution By Thomas Grebel
  5. Ethnic Networks, Information, and International Trade: Revisiting the Evidence By Gabriel Felbermayr; Benjamin Jung; Farid Toubal
  6. Social Incentives in the Workplace By Bandiera, Oriana; Barankay, Iwan; Rasul, Imran
  7. Networks and innovation: the role of social assets in explaining firms' innovative capacity By Uwe Cantner; Elisa Conti; Andreas Meder

  1. By: Julian P. Christ (Universität Hohenheim); André P. Slowak (Universität Hohenheim)
    Abstract: Extensive research has been conducted on the economics of standards in the last three decades. To date, standard-setting studies emphasize a superior role of demand-side-driven technology diffusion; these contributions assume the evolution of a user-driven momentum and network externalities. We find that consumers wait for a dominant standard if they are unable to evaluate technological supremacy. Thus, supply-side driven activities necessarily need to address a lacking demand-side technology adoption. Our paper focuses on Blu-ray vs. HD-DVD as an illustrative case of consortia standard wars. One central role of consortia is to coordinate strategic behavior between heterogeneous agents, e.g. incumbents, complementors (content providers) and others, but also to form a coalition against other standard candidates. More precisely, we argue for signalizing activities through consortia events. We depict the essential role of consortia structures for the recently determined standard war between the High-Definition disc specifications Blu-ray and HD-DVD. Therefore, the paper suggests that unique supply-side dynamics from consortia structures, consortia announcements and exclusive backing decisions of firms determined the standard-setting process in the Blu-ray vs. HD-DVD standard war. This study is based on the following data: movie releases and sales numbers, membership affiliation for structural consortia analysis, and an in-depth event study. A detailed comparison of the technological specifications of both standard specifications supports our argument that there was no technological supremacy of one standard candidate from a consumer-oriented usecase perspective. We furthermore clarify that content providers (complementors) such as movie studios and movie rental services feature a gate-keeping position in the Blu-ray vs. HD-DVD standard war. In the case of Blu-ray, film studios decided the standard war because the availability of movie releases, but not technological supremacy, made the standard attractive to consumers. Finally, we find that there is a co-evolution of the consortia in terms of membership dynamics. Particularly, firm allegiance of heterogeneous agents plays a crucial role.
    Keywords: Blu-ray, HD-DVD, standard wars, co-evolution, consortia, event study
    JEL: B52 D84 L15 O33
    Date: 2009–05
  2. By: Marcel Fafchamps (University of Oxford); Marco van der Leij (Universidad de Alicante); Sanjeev Goyal (Department of Economics, Queen Mary)
    Abstract: The matching of individuals in teams is a key element in the functioning of an economy. The network of social ties can potentially transmit important information on abilities and reputations and also help mitigate matching frictions by facilitating interactions among ¿screened¿ individuals. We conjecture that the probability of i and j forming a team is falling in the distance between i and j in the network of existing social ties. The objective of this paper is to empirically test this conjecture. We examine the formation of coauthor relations among economists over a twenty year period. Our principal finding is that a new collaboration emerges faster among two researchers if they are ¿closer" in the existing coauthor network among economists. This proximity effect on collaboration is strong: being at a network distance of 2 instead of 3, for instance, raises the probability of initiating a collaboration by 27 percent. Research collaboration takes place in an environment where fairly detailed information concerning individual ability and productivity -reflected in publications, employment history, etc.- is publicly available. Our finding that social networks are powerful even in this setting suggests that they must affect matching processes more generally.
    Keywords: coauthorship network, matching, network effects, network formation.
    JEL: C78 D83 D85
    Date: 2009–01
  3. By: Jolian McHardy (Department of Economics, The University of Sheffield); Michael Reynolds; Stephen Trotter
    Abstract: We introduce a new regulatory concept: the independent profit-maximising agent, as a model for regulating a network monopoly. The agent sets prices on cross-network goods taking either a complete, or arbitrarily small, share of the associated profit. We examine welfare and profits with and without each agent type under both network monopoly and network duopoly. We show that splitting up the network monopoly (creating network duopoly) may be inferior for both firm(s) and society compared with a network monopoly "regulated" by an agent and that society always prefers any of the four agent regimes over network monopoly and network duopoly.
    Keywords: Network, Monopoly, Agent
    JEL: D43 L13 R48
    Date: 2009–03
  4. By: Thomas Grebel (Economics Department, University of Jena)
    Abstract: Economic behavior strives for efficiency. Therefore, also evolving network structures should be a result of such a goal-oriented behavior. Traditionally, networks were assumed to be only temporary phenomena, since the prevailing organizational forms that comply with the efficiency postulate are either firms or markets. Having a goal in mind, however, does not incur a set of unique choices of action, especially in situations under high uncertainty when engaging in invention networks. Consequently, there is no uniqueness in network structures. There is a random part in network evolution driven by generic mechanisms. A percolation model is used to model the generic development of invention networks. A Monte-Carlo simulation underlines the expectable patterns of network evolution. Moreover, it is tried to align the generic part of the story to the operant level where entrepreneurial behavior and market selection takes over the dominant role in network formation.
    Keywords: R&D cooperation, percolation theory, knowledge diffusion, networks
    JEL: A10 B10 B21 B25 B41 B52 C15 D85 I10 O10 O33
    Date: 2009–05–25
  5. By: Gabriel Felbermayr; Benjamin Jung; Farid Toubal
    Abstract: Influential empirical work by Rauch and Trindade (REStat, 2002) finds that Chinese ethnic networks of the magnitude observed in Southeast Asia increase bilateral trade by at least 60%. We argue that this estimate is upward biased due to omitted variable bias. Moreover, it is partly related to a preference effect rather than to enforcement and/or the availability of information. Applying a theory-based gravity model to ethnicity data for 1980 and 1990, and focusing on pure network effects, we find that the Chinese network leads to a more modest amount of trade creation of about 15%. Using new data on bilateral stocks of migrants from the World Bank for the year of 2000, we extend the analysis to all potential ethnic networks. We find, i.a., evidence for a Polish, a Turkish, a Mexican, or an Indian network. While confirming the existence of a Chinese network, its trade creating potential is dwarfed by other ethnic networks.
    Keywords: Gravity model, international trade,network effects, international migration. regression
    JEL: F22 F12
  6. By: Bandiera, Oriana (London School of Economics); Barankay, Iwan (University of Pennsylvania); Rasul, Imran (University College London)
    Abstract: We present evidence on social incentives in the workplace, namely on whether workers’ behavior is affected by the presence of those they are socially tied to, even in settings where there are no externalities among workers due to either the production technology or the compensation scheme in place. To do so we combine data on individual worker productivity from a firm’s personnel records with information on each worker’s social network of friends in the firm. We find that compared to when she has no social ties with her co-workers, a given worker’s productivity is significantly higher when she works alongside friends who are more able than her, and significantly lower when she works with friends who are less able than her. As workers are paid piece rates based on individual productivity, social incentives can be quantified in monetary terms and are such that (i) workers who are more able than their friends are willing to exert less effort and forgo 10% of their earnings; (ii) workers who have at least one friend who is more able than themselves are willing to increase their effort and hence productivity by 10%. The distribution of worker ability is such that the net effect of social incentives on the firm’s aggregate performance is positive. The results suggest that firms can exploit social incentives as an alternative to monetary incentives to motivate workers.
    Keywords: conformism, social incentives, social networks
    JEL: L2 M5
    Date: 2009–05
  7. By: Uwe Cantner (Friedrich Schiller University Jena, Department of Economics and Business Adminstration); Elisa Conti (IULM University, Department of Economics and Marketing); Andreas Meder (Graduate College EIC, Friedrich Schiller University Jena and Thuringian Ministry of Economic Affairs)
    Abstract: The claim of a positive association between a firm's social assets and its innovative capacity is a widely debated topic in the literature. Although controversial, such an argument has informed recent innovation policy across Germany, increasingly directed to cluster formation. In the light of the growing attention and financial efforts that cluster-based innovation policies are receiving, it is worth answering two main questions. First, are firms with a relatively high level of social capital likely to be more innovative? Second, do companies pursuing innovation in partnership innovate more? This paper empirically answers these questions by exploring a cross-sectoral sample of 248 firms based in the Jena region. On the one hand, the extent to which a firm is integrated in its community life does not contribute to an explanation of its innovative performance. On the other hand, directed cooperation with the specific goal of innovating shows a positive impact on innovative performance. However, the correlation between the extent of the network of co-innovators and firms' innovative capacity presents an inverted U-shaped relation: there is a threshold in the number of co-innovators justified by the costs of innovating by interacting. A policy lesson can be drawn from these findings: cluster-based policies are to be treated with caution as firms face costs of networking and not merely benefits.
    Keywords: innovation, social capital, innovation network, innovation cooperation, cluster-based policy.
    JEL: O33 L14 R5
    Date: 2009–06–02

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