nep-net New Economics Papers
on Network Economics
Issue of 2010‒11‒06
thirteen papers chosen by
Yi-Nung Yang
Chung Yuan Christian University

  1. Information, Stability and Dynamics in Networks under Institutional Constraints By Norma Olaizola; Federico Valenciano
  2. Are Networks Priced? Network Topology and Order Trading Strategies in High Liquidity Markets By Ethan Cohen-Cole; Andrei Kirilenko; Eleonora Patacchini
  3. Antitrust in two-sided markets: Is competition always desirable? By Fiedler, Ingo C
  4. Overlapping Coalitions, Bargaining and Networks By Messan Agbaglah; Lars Ehlers
  5. The Brazilian Interbank Network Structure and Systemic Risk By Edson Bastos e Santos; Rama Cont
  6. Imperfect Platform Competition: A General Framework By Alexander White; E. Glen Weyl
  7. Marketing via Friends: Strategic Diffusion of Information in Social Networks with Homophily By Roman Chuhay
  8. Diffusion of Innovations on Community Based Small Worlds: the Role of Correlation between Social Spheres By Emily Tanimura
  9. The Determinants of International Financial Integration Revisited: The Role of Networks and Geographic Neutrality. By Pérez García Francisco; Tortosa-Ausina Emili; Arribas Fernández Iván
  10. Spying in Multi-market Oligopolies By Pascal Billand; Christophe Bravard; Subhadip Chakrabarti; Sudipta Sarangi
  11. Emerging models of public-private interplay for European broadband access: Evidence from the Netherlands and Italy By Alberto Nucciarelli; Bert M. Sadowski; Paola O. Achard
  12. International Production Networks in Machinery Industries: Structure and Its Evolution By Fukunari KIMURA; Ayako OBASHI
  13. Network Revenue Management with Product-Specific No-Shows By Sumit Kunnumkal; Kalyan Talluri; Huseyin Topaloglu

  1. By: Norma Olaizola (Universidad del País Vasco); Federico Valenciano (Universidad del País Vasco)
    Abstract: In this paper we study the effects of institutional constraints on stability, efficiency and network formation. More precisely, an exogenous "societal cover" consisting of a collection of possibly overlapping subsets that covers the whole set of players and such that no set in this collection is contained in another specifies the social organization in different groups or "societies". It is assumed that a player may initiate links only with players that belong to at least one society that s/he also belongs to, thus restricting the feasible strategies and networks. In this way only the players in the possibly empty "societal core", i.e., those that belong to all societies, may initiate links with all individuals. In this setting the part of the current network within each connected component of the cover is assumed to be common knowledge to all players in that component. Based on this two-ingredient model, network and societal cover, we examine the impact of societal constraints on stable/efficient architectures and on dynamics.
    Keywords: Network, Non-cooperative Game, Dynamics
    JEL: C72
    Date: 2010–10
  2. By: Ethan Cohen-Cole (University of Maryland - College Park); Andrei Kirilenko (Commodity Futures Trading Commission); Eleonora Patacchini (University of Rome - La Sapienza)
    Abstract: Network spillovers explain as much as 90% of the individual variation in returns in a fully electronic market. We study two fully electronic, highly liquid markets, the Dow an S&P 500 e-mini futures markets. Within these markets, we use a unique dataset of realized trades that includes the precise topology of transactions; this topology allows us to identify precisely both the relevance of network structure as well as endogenous network spillovers. Within these markets, we will show that network positioning on the part of trader leads to remarkable spillovers in return. Empirically, we estimate that the implied average multiplier, the ratio of a individual level shock to the total network one, is as large as 20. A gain of $1 for a trader leads to an average of $20 in gains for all traders and much more for connected ones. In a zero-sum market, such as the one in this study, this suggests a very large re-allocation of returns according to network structure.
    JEL: G10 C21
    Date: 2010
  3. By: Fiedler, Ingo C
    Abstract: The main objective of antitrust interventions is to assure competition in markets to benefit consumers. This paper challenges this common approach by examining the case of a satellite broadcasting network with monopoly power. First, satellite TV is identified as a two-sided market. It is then analyzed in the framework of the canonical model for two-sided markets developed by Rochet & Tirole (2004). The main finding is that the satellite network maximizes his profits by choosing a price formation which maximizes the overall welfare of all market participants. Even if the satellite network uses his monopoly power to introduce a fee to receive satellite TV, it would do so only until the semi-elasticity of the amount of consumers in regard to the per-interaction-price equals the one of the TV stations – exactly the point where welfare is maximized. It is therefore concluded that antitrust cases have to take a more in-depth look at two-sided markets before deciding that competition is best for consumers.
    Keywords: Antitrust, two-sided markets, broadcasting, welfare
    Date: 2010–10–25
  4. By: Messan Agbaglah (Département de Sciences Economiques and CIREQ, Université de Montréal); Lars Ehlers (Département de Sciences Economiques and CIREQ, Université de Montréal)
    Abstract: This paper extends the theory of endogenous coalition formation, with complete information and transferable utility, to the overlapping case. We propose a cover function bargaining game which allows the formation of overlapping coalitions at equilibrium. We show the existence of subgame perfect equilibrium and provide an algorithm to compute this equilibrium in the symmetric case. As an application, we establish an interesting link with the formation of networks.
    Keywords: Overlapping Coalitions, Cover Function, Bargaining, Symmetric Game, Network
    JEL: C71 C72 C78 D62 D85
    Date: 2010–09
  5. By: Edson Bastos e Santos; Rama Cont
    Abstract: ...
    Date: 2010–10
  6. By: Alexander White (Department of Economics, Harvard University); E. Glen Weyl (Harvard University Society of Fellows; Toulouse School of Economics)
    Abstract: We propose a general model of imperfect competition among multi-product firms, the consumption of whose goods yields externalities from one consumer to another. We extend the allocation approach of the Weyl (2010) monopoly model, proposing a solution concept, Insulated Equilibrium, that allows for tractable analysis of competition. In such an equilibrium each firm’s price on one side of the market adjusts to all firms’ participation levels on the other side, so as to insulate its own allocation. This eliminates both the indeterminacy of consumer reactions once platforms have set their tariffs and the multiplicity of reaction functions that platforms can have to one another’s tariffs. Our approach allows us to derive intuitive first-order conditions characterizing equilibrium without restrictive assumptions and to analyze the effects of competition, mergers and regulation.
    Keywords: Two-sided Markets, Multi-sided Platforms, Quality Competition, Oligopoly, Antitrust of Network Industries
    JEL: D21 D43 L13
    Date: 2010–09
  7. By: Roman Chuhay (University of Alicante)
    Abstract: The paper studies the impact of homophily on the optimal strategies of a monopolist, whose marketing campaign of new product relies on a word of mouth communication. Homophily is a tendency of people to interact more with those who are similar to them. In the model there are two types of consumers embedded into a social network, which differ in friendship preferences and desirable design of product. Consumers can learn about the product directly from an advertisement or from their neighbors. The monopolist chooses the product design and price to influence a pattern of communication among consumers. We find a number of results: (i) for low levels of homophily the product attractive to both types of consumers is preferred to specialized products; (ii) the price elasticity is increasing in homophily; (iii) an increase in the homophily benefits both the monopolist and consumers; and (iv) the product attractive to both types may be optimal even if the monopolist obtains profits only from sales to one type of consumers.
    Keywords: Networks, Word of Mouth, Viral Marketing, Homophily, Diffusion, Social Networks, Random Graphs, Monopoly, Pricing Strategy, Product Design, Marketing, Advertisement
    JEL: D21 D42 D60 D83 L11 L12
    Date: 2010–09
  8. By: Emily Tanimura (Université Paris 1 Panthéon-la Sorbonne-CNRS)
    Abstract: Which types of networks favor the diffusion of innovations in the sense that an innovation whose intrinsic benefits are greater than those of an established choice will be able to replace the latter when it is initially used only by a small fraction of a large population? For deterministic and regular networks there are characterizations, based on a coordination game model of the diffusion of innovations. Here we study this question for a class of irregular random networks, Small world networks, which are of interest as more realistic models of social networks. We consider a random graph model based on a community structure, in which the choice of a parameter allows us to obtain as special cases several well known models, in particular Watts' Small world. We show that there are different types of Small World graphs some which favor diffusion, others that do not. Our study suggests that the kinds of ties that exist between different communities of an individual play an important role. We interpret Watts' Small World as one with high correlation between social spheres of individuals and favorable to diffusion. In other Small Worlds where the communities of individuals are uncorrelated diffusion succeeds only for very large payoff benefits in favor of the innovation.
    Keywords: Diffiusion of innovations, Small World Networks, Contagion Threshold, Community Structure, Social Networks
    JEL: D85
    Date: 2010–10
    Abstract: Over the last two decades, the degree of international financial integration has increased substantially, becoming an important area of research for many financial economists. This working paper explores the determinants of the asymmetries in the international integration of banking systems. We consider an approach based on both network analysis and the concept of geographic neutrality. Our analysis focuses on the banking systems of 18 advanced economies between 1999 and 2005. Results indicate that banking integration should be assessed from the perspective of both inflows and outflows, given that they show different patterns for different countries. Using standard techniques, our results reinforce previous findings by the literature-especially the remarkable role of both geographic distance and trade integration. Nonparametric techniques reveal that the effect of the covariates on banking integration is not constant over the conditional distribution, which (in practical terms) implies that the sign of the relationship varies across countries.
    Keywords: Banking integration, geographic neutrality, network analysis, nonparametric regression.
    Date: 2009–11
  10. By: Pascal Billand (CREUSET, Jean Monnet University); Christophe Bravard (CREUSET, Jean Monnet University); Subhadip Chakrabarti (School of Management and Economics, Queen’s University Belfast); Sudipta Sarangi (DIW Berlin and Department of Economics, Louisiana State University)
    Abstract: We consider a multimarket framework where a set of firms compete on two interrelated oligopolistic markets. Prior to competing in these markets, firms can spy on others in order to increase the quality of their product. We characterize the equilibrium espionage networks and networks that maximize social welfare under the most interesting scenario of diseconomies of scope. We find that in some situations firms may refrain from spying even if it is costless. Moreover, even though spying leads to increased product quality, there exist situations where it is detrimental to both consumer welfare and social welfare.
    Keywords: Oligopoly, Multimarket, Networks
    JEL: C70 L13 L20
    Date: 2010–09
  11. By: Alberto Nucciarelli; Bert M. Sadowski; Paola O. Achard
    Abstract: The paper examines the role and function of public-private interplay in the development of municipal initiatives in the broadband sector. The analysis of initiatives in the Netherlands and Italy shows how the interaction between public and private stakeholders can facilitate local broadband initiatives. This interaction has been vital in aligning the interests of different private and (semi-)public parties, in designing the network and in aggregating sufficient demand for broadband services. The comparative analysis examines the steps involved in these initiatives and the strengths and weaknesses of joint public-private activities. The paper shows that the challenge for cooperating stakeholders has been to foster further investment in the upgrading of the network and in the provision of advanced broadband services.
    Keywords: municipal broadband networks, public-private interplay, The Netherlands, Italy.
    Date: 2010–05
  12. By: Fukunari KIMURA (Faculty of Economics, Keio University, Japan , Economic Research Institute for ASEAN and East Asia (ERIA), Indonesia); Ayako OBASHI (Faculty of Economics, Keio University, Japan)
    Abstract: This paper intensively employs annual international trade statistics obtained from the UN Comtrade and examines to what degree East Asian countries have participated in global production networks in comparison with countries in other regions and whether East Asia’s intra-regional trade in machinery is different from extra-regional trade and transactions by other regions. It provides strong evidence of the formation of East Asian production networks, particularly in the form of expansion of exports and imports of parts & components, often ICT-related. It also traces the development of intra-regional markets of both parts & components and finished products since 2000.
    Date: 2010–09–01
  13. By: Sumit Kunnumkal; Kalyan Talluri; Huseyin Topaloglu
    Abstract: Revenue management practices often include overbooking capacity to account for customers who make reservations but do not show up. In this paper, we consider the network revenue management problem with no-shows and overbooking, where the show-up probabilities are specific to each product. No-show rates differ significantly by product (for instance each itinerary/fare combination for an airline) as sale restrictions and the demand characteristics vary by product. However, models that consider no-show rates by each individual product are difficult to handle as the state-space (or the variable space in approximations) increases significantly. In this paper we propose a randomized linear program to jointly make the capacity control and overbooking decisions with product-specific no-shows. We establish that our formulation gives an upper bound on the optimal expected total profit and that this upper bound is tighter than a deterministic linear programming bound that appears in the existing literature. We describe how the randomized linear program can be used to obtain a bid price control policy. Numerical experiments indicate that our approach is fast, able to scale to industrial-size problems, and can provide significant improvements over standard benchmark methods.
    Keywords: Network revenue management, linear programming, simulation, overbooking, no-shows.
    JEL: M11 M31 L93 L83
    Date: 2010–10

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