nep-net New Economics Papers
on Network Economics
Issue of 2010‒04‒17
five papers chosen by
Yi-Nung Yang
Chung Yuan Christian University

  1. Mobile termination, network externalities, and consumer expectations By Hurkens, Sjaak; Lopez, Angel
  2. Competition in the Korean Internet Portal Market: Network Effects, Profit, and Market Efficiency By Junseok Hwang; Dongook Choi; Jongeun Oh; Yeonbae Kim
  3. Centralizing Information in Networks By Jeanne Hagenbach
  4. The Structure of Online Consumer Communication Networks By Harmsen - van Hout, Marjolein J.W.; Herings, P. Jean-Jacques; Dellaert, Benedict G.C.
  5. Do Social Networks Prevent Bank Runs? By Garcia-Rosa, Alfonso; Kiss, Hubert Janos; Rodriguez-Lara, Ismael

  1. By: Hurkens, Sjaak (IESE Business School); Lopez, Angel (IESE Business School)
    Abstract: We re-examine the literature on mobile termination in the presence of network externalities. Externalities arise when firms discriminate between on- and off-net calls or when subscription demand is elastic. This literature predicts that profit decreases and consumer surplus increases in termination charge in a neighborhood of termination cost. This creates a puzzle since in reality we see regulators worldwide pushing termination rates down while being opposed by network operators. We show that this puzzle is resolved when consumers¿ expectations are assumed passive but required to be fulfilled in equilibrium (as defined by Katz and Shapiro, AER 1985), instead of being rationally responsive to non-equilibrium prices, as assumed until now.
    Keywords: Networks; Rational Expectations; Access Pricing; Interconnection; Regulation; Telecommunications;
    JEL: K23 L51 L96
    Date: 2010–03–03
  2. By: Junseok Hwang; Dongook Choi; Jongeun Oh; Yeonbae Kim (Technology Management, Economics and Policy Program(TEMEP), Seoul National University)
    Abstract: Internet portals serve as platforms that coordinate advertising and user markets, and the portal market features network effects within and between both sides. We model the market structure in order to explain network effects and other factors of competition such as prices for advertisements, contents, and differentiated services offered. We empirically identify these effects with data from South Korea and analyze the role of the effects in terms of profit and market efficiency. The results indicate that a negative indirect network effect exists in the user market but is prevailed over by the direct network effect. This explains how Internet portals make profits by increasing user visits. Further, we show the existence of network effects causes consumer¡¯s surplus not to decrease with market concentration.
    Keywords: Internet Portal Industry, Network Effect, Two-sided Market, Market Efficiency
    JEL: D21 H25 H32 L11
    Date: 2009–10
  3. By: Jeanne Hagenbach (University of Mannheim)
    Abstract: In the dynamic game we analyze, players are the members of a fixed network. Everyone is initially endowed with an information item that he is the only player to hold. Players are offered a finite number of periods to centralize the initially dispersed items in the hands of any one member of the network. In every period, each agent strategically chooses whether or not to transmit the items he holds to his neighbors in the network. The sooner all the items are gathered by any individual, the better it is for the group of players as a whole. Besides, the agent who first centralizes all the items is offered an additional reward that he keeps for himself. In this framework where information transmission is strategic and physically restricted, we provide a necessary and suffcient condition for a group to pool information items in every equilibrium. This condition is independent of the network structure. The architecture of links however affects the time needed before items are centralized in equilibrium.
    Keywords: communication network, communication dilemma, dynamic network game, strategic communication, war of attrition
    JEL: D83 C72 L22
    Date: 2010–04
  4. By: Harmsen - van Hout, Marjolein J.W. (E.ON Energy Research Center, Future Energy Consumer Needs and Behavior (FCN)); Herings, P. Jean-Jacques (Department of Economics, School of Business and Economics, Maastricht University); Dellaert, Benedict G.C. (Department of Business Economics / Marketing Section, Erasmus School of Economics, Erasmus University Rotterdam)
    Abstract: We analyze the structure of bilateral communication links among consumers in virtual communities by a game-theoretic model of network formation. First, link specificity is incorporated, meaning that the more direct links somebody has to maintain with others, the less she is able to specify her attention per link, so that the value of her links decreases. Second, a distinction is made between the social and informational value from communication, where informational value is transferable via indirect links, whereas social value is not. We characterize the set of pairwise stable structures in the case with only social value to indicate the separate impact of link specificity and demonstrate that it includes a wide range of non-standard architectures under large link specificity and particular combinations of fully connected components under low link specificity. In the case with both social and informational value, the joint effect of link specificity and value transferability is shown to reduce the pairwise stable set to particular fragmented architectures under large link specificity or rather to the complete network under small link specificity.
    Keywords: Consumers; Virtual Communities; Bilateral Communication Links; Social vs. Informational Value; Specificity; Transferability; Network Formation; Game Theory
    JEL: A14 C79 D85 M31
    Date: 2010–03
  5. By: Garcia-Rosa, Alfonso; Kiss, Hubert Janos; Rodriguez-Lara, Ismael (Departamentos y Servicios::Departamentos de la UMU::Fundamentos del Análisis Económico)
    Abstract: We develop, both theoretically and experimentally, a stereotypical environment that allows for co-ordination breakdown, leading to a bank run. Three depositors are located at the nodes of a network and have to decide whether to keep their funds deposited or to withdraw. One of the depositors has immediate liquidity needs, whereas the other two depositors do not. Depositors act sequentially and observe others’ actions only if connected by the network. Theoretically, a link connecting the first two depositors to decide is sufficient to avoid a bank run. However, our experimental evidence shows that subjects’choice is not a¤ected by the existence of the link per se. Instead, being observed and the particular action that is observed determine subjects’choice. Our results highlight the importance of initial decisions in the emergence of a bank run. In particular, Bayesian analysis reveals that subjects clearly depart from predicted behavior when observing a withdrawal.
    Keywords: bank runs, coordination failure, experimental evidence, networks
    JEL: D12 R23
    Date: 2010–01

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