nep-net New Economics Papers
on Network Economics
Issue of 2010‒02‒27
five papers chosen by
Yi-Nung Yang
Chung Yuan Christian University

  1. Product differentiation on a platform: the informative and persuasive role of advertising. By De Smet, Dries; Van Cayseele, Patrick
  2. Does Social Lending incorporate Social Technologies? The use of Web 2.0 Technologies in online P2P lending By Arvind Ashta; Djamchid Assadi
  3. Private Regulation, Supply Chain and Contractual Networks: The Case of Food Safety By Fabrizio Cafaggi
  4. Trust, Information Acquisition and Financial Decisions: A Field Experiment By Sonia Di Giannatale; Alexander Elbittar; Patricia López Rodriguez; María José Roa
  5. An Analysis of European Online micro-lending Websites By Arvind Ashta; Djamchid Assadi

  1. By: De Smet, Dries; Van Cayseele, Patrick
    Abstract: Both sides of a two-sided market are usually modeled as markets without product differentiation. Often however, it will be profit maximizing to differentiate one or two sides in two or more types. In a simple theoretical model, inspired by Yellow Pages, we show that this decision crucially depends on the appreciation of these differentiated types by the other side. We argue that this consists of two parts: first, a preference for informative advertisement by users and second, the effect of persuasive advertisements on users. The relation between both effects drives the monopolist decision to engage in product differentiation. We test this conceptual framework in an empirical investigation of Yellow Pages. We find that Yellow Pages publishers offer large ads even though users don't value them at all. The economic rationale for this is that each advertisement type contributes directly (by the price paid for it) and indirectly (by increased usage) to revenues. Large ads are mainly set for this direct contribution, small ads for this indirect contribution. If a platform can choose the size, it will make the size difference between small and large ads as large as possible, in order to attract as much users as possible, but also to induce self selection among advertisers.
    Date: 2010
  2. By: Arvind Ashta (Centre Emile Bernheim, CERMi, Solvay Brussels School of Economics and Management, Université Libre de Bruxelles, Brussels and CEREN, Burgundy School of Business (Groupe ESC Dijon-Bourgogne), France); Djamchid Assadi (CEREN, Burgundy School of Business (Groupe ESC Dijon-Bourgogne), France)
    Abstract: Microcredit interest costs remain higher than those of commercial banks in spite of significant donor funds, largely owing to transaction costs relative to small loan sizes. With the rise of Web 2.0 and online social interactivity, can these transaction costs be reduced through peer to peer lending? Peer to Peer lending and Web 2.0 have two things in common. The first common denominator is that both of them are rather newcomers in their respective fields and growing fast. The second is that they are both based on mutual and social exchanges between people instead of centrally controlled communications and relationships. The main objective of this paper was to investigate whether they are integrated to support a higher level of social interactions and associations for less (transaction) costs. We find that peer to peer lending consists of diverse websites of microcredit (Kiva, Wokai), social investing (MicroPlace) as well as small loans at market rates (Prosper, Zopa, Lending Club), and even lending between friends and family members (Virgin Money). The paper studies the use of web 2.0 technologies (blogs, interactivity between lenders and buyers, peers' reviews and comments, peers communities and chats) in six such peer-to-peer lending sites. It finds that most of the peer-to-peer lenders are in fact intermediaries between the peers (lender and borrowers) and there is little direct contact between the peers. One website used none of the web 2.0 tools. None of the websites used all the web 2.0 tools. The impact on transaction costs is therefore very little. A discussion of difficulties in establishing platforms in this field and directions for future research are provided.
    Date: 2009–06
  3. By: Fabrizio Cafaggi
    Abstract: Within agriculture industry chains, important changes have taken place. Both vertical integration and vertical disintegration are occurring. These transformations may have effects on the adoption of private standards, but more importantly, may also effect the functions that private standards may play within the chain. I develop a coordinated approach that integrates the value supply chain perspective with regulatory theory to show that co-evolutionary patterns explain the changes in the supply chain and the increasing use of transnational private regulation. I then focus on different coordination mechanisms that are, or can be, used in food chains, and propose a wider deployment of contractual networks to improve effectiveness of food safety regulation. I distinguish between contractual networks directed at information production and transfer and contractual networks concerning risk assessment and risk management. I conclude with some policy recommendations.
    Date: 2010–02–15
  4. By: Sonia Di Giannatale (Centro de Investigación y Docencia Económicas); Alexander Elbittar (Centro de Investigación y Docencia Económicas); Patricia López Rodriguez (Universidad Iberoamericana); María José Roa (Centro de Investigación y Docencia Económicas)
    Abstract: In this paper we analyze the relationship between financial decisions, information acquisition, and trust. In particular, our hypothesis is that financial transactions depend, among other variables, on the level of trust, reciprocity and association among individuals. Also, individuals’ willingness to acquire and process information relevant to perform financial transactions is related not only to their cognitive abilities, but also to the level of trust they have in the financial institutions. We conducted a field experiment using the trust game, with two important variations, with the partners of an of credit and savings cooperative located in a rural area of México. Our results indicate that those individuals who frequently visit their friends show greater willingness to trust other individuals. In contrast, those individuals who visit their families more regularly show less willingness to reciprocate, while active members of the cooperative show greater reciprocity. Regarding the acquisition of information, we find that just over 2/3 of the participants buy the maximum of pieces of information. However, none of the pieces of information acquired appears to affect the transfers among participants. Possibly for our experimental subjects trust plays an overextended role in financial decision making that makes information acquisition less relevant than it is for other types of individuals making the same sort of decisions.
    Keywords: Social Networks, Information, Social Preferences, Cooperation, Trust, Reciprocity, Financial Development, Field Experiments
    Date: 2010–02–17
  5. By: Arvind Ashta (CEREN, Burgundy School of Business (Groupe ESC Dijon-Bourgogne), France and Centre Emile Bernheim, CERMi, Solvay Brussels School of Economics and Management, Université Libre de Bruxelles, Brussels.); Djamchid Assadi (CEREN, Burgundy School of Business (Groupe ESC Dijon-Bourgogne), France)
    Abstract: Purpose of the paper: With the development of web 2.0, a new kind on lending is taking place on the internet, termed peer to peer lending or social lending. In Europe, this includes commercial lending websites such as Zopa, smava, boober, Kokos, Monetto. At the same time, following the lead of Kiva in the US, European microcredit web platforms are coming up including MyC4 and Babyloan in Europe. The paper examines how the legal design of the online websites differs from the microcredit websites in Europe and how this impacts social performance issues of the different models. Design/Methodology/Approach: Since the population size of these websites is rather small, we use a comparative case study approach. The case study approach is the most adapted to studying small samples in more detail. The case studies are based on exploring of websites and review of academic literature and press reports. Key results: We find that although web2.0 permits platform models, most sites (commercial or micro-lending) have retained intermediary roles and have not permitted direct peer to peer contact. The paper will outline the advantages to both borrowers and lenders in the different models and their motivations. Challenges for expansion, such as trust-building as well as a marketing analysis will also be presented. Impact: The findings would lead microfinance institutions to lobby for specific laws, and invest in online lending solutions to radically reduce operating costs as well as to increase outreach. Value: This research would add value to those who are operating in or launching new online microcredit platforms to understand this young and fast changing marketplace.
    Keywords: online lending, regulation, social performance, microfinance
    Date: 2009–06

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