nep-net New Economics Papers
on Network Economics
Issue of 2011‒02‒26
twelve papers chosen by
Yi-Nung Yang
Chung Yuan Christian University

  1. Two-Sided Competition and Differentiation (with an Application to Media) By Guillaume Roger
  2. Broadband Policy in the Light of the Dutch Experience with Telecommunications Liberalization By Paul de Bijl
  3. Two-way Flow Networks with Small Decay By K. De Jaegher; J.J.A. Kamphorst
  4. Platform Pricing Structure and Moral Hazard By Guillaume Roger; Luis I. Vasconcelos
  5. Games on Union Closed Systems By Rene van den Brink; Ilya Katsev; Gerard van der Laan
  6. Are there neighbourhood effects on teenage parenthood in the UK, and does it matter for policy? A review of theory and evidence By Dylan Kneale; Ruth Lupton
  7. Social Capital and Savings Behaviour: Evidence from Vietnam By Carol Newman; Finn Tarp; Katleen Van Den Broeck
  8. Social Networks and Interactions in Cities By Helsley, Robert W.; Zenou, Yves
  9. The Emergence of Social Structure: Employer Information Networks in an Experimental Labor Market By Klarita Gerxhani; Jordi Brandts; Arthur Schram
  10. Pivotal Suppliers and Market Power in Experimental Supply Function Competition By Jordi Brandts; Stanley S. Reynolds; Arthur Schram
  11. Naïve Beliefs and the Multiplicity of Social Norms By Patel, Amrish; Cartwright, Edward
  12. Learning by observing By Efe Postalci

  1. By: Guillaume Roger (School of Economics, The University of New South Wales)
    Abstract: We model a duopoly in which two-sided platforms compete on both sides of a two-sided market. Platforms (or intermediaries) select the quality they offer consumers, and the prices they charge to consumers and firms. In this model, non-trivial competition on both sides induces non-quasiconcave payoffs in one subgame. All equilibria are characterized. Under well-defined conditions, the unique equilibrium in pure strategies can be computed. Prices entail a discount on one side, a premium on the other one and the quality offered to consumers is distorted downward. When the pure-strategy equilibrium fails to exist, a mixed-strategy equilibrium is shown to always exist and the distributions are characterized. In this case, the market may be preempted ex post. The model may find applications in the media, internet trading platforms, the software industry or even the health care industry (HMO/PPO).
    Keywords: Two-Sided Market; Vertical Differentiation; Industrial Organization; Platform Competition
    JEL: C72 D43 D62 L13 L15
    Date: 2010–11
  2. By: Paul de Bijl
    Abstract: Is the gradual introduction of facilities-based competition, by fine-tuning access regulation, working as intended? What can one learn from the Dutch experience?
    JEL: L51 L96 L98 O33
    Date: 2011–02
  3. By: K. De Jaegher (Utrecht University); J.J.A. Kamphorst (Erasmus University Rotterdam)
    Abstract: This paper characterizes the set of equilibrium networks in the two-way flow model of network formation with small decay, and this for all increasing benefit functions of the players. We show that as long as the population is large enough, this set contains large- as well as small-diameter networks. For all benefit functions, the periphery-sponsored star is the most stable. When the marginal benefits of information are constant, all non-star networks are equally stable. With increasing marginal benefits of information, small-diameter networks in general tend to be more stable. However, with decreasing marginal benefits of information, large-diameter networks tend to be the most robust along with the periphery-sponsored star.
    Keywords: Network formation; two-way flow model; decay; non-linear benefits
    JEL: C72 D85
    Date: 2010–12–10
  4. By: Guillaume Roger (School of Economics, The University of New South Wales); Luis I. Vasconcelos (Department of Economics, Universidade Nova de Lisboa)
    Abstract: We study pricing by a monopoly platform that matches buyers and sellers in an environment with cross-market externalities. Said platform has no private information, does not set the commodity's price and can only charge trading parties for the transaction. Our innovation consists in introducing moral hazard on the sellers' side and an equilibrium notion of platform reputation in an infinite horizon model. With linear fees the platform can mitigate, but not eliminate, the loss of reputation induced by moral hazard. If lump-sum fees (registration fees) can be levied, moral hazard can be overcome. The upfront payment determines the participation threshold of sellers and extracts them, while (lower) transactions fees provide incentives for good behavior. This breaks the equivalence of lump-sum payments and linear fees (Rochet and Tirole (2006)). We draw implications for the role of subsidies (Caillaud and Jullien (2003)).
    Keywords: Platforms; Two-Sided Markets; Reputation; Moral Hazard
    JEL: L11 L12 L14 L81 D21 D82
    Date: 2010–11
  5. By: Rene van den Brink (VU University Amsterdam); Ilya Katsev (Russian Academy of Sciences, St Petersburg); Gerard van der Laan (VU University Amsterdam)
    Abstract: A situation in which a finite set of players can obtain certain payoffs by cooperation can be described by a cooperative game with transferable utility, or simply a TU-game. A solution for TU-games assigns a set of payoff distributions to every TU-game. In the literature various models of games with restricted cooperation can be found. So, instead of allowing all subsets of the player set N to form, it is assumed that the set of feasible coalitions is a subset of the power set of N. In this paper we consider such sets of feasible coalitions that are closed under union, i.e. for any two feasible coalitions also their union is feasible. Properties of solutions (the core, the nucleolus, the prekernel and the Shapley value) are given for games on union closed systems.
    Keywords: TU-game; restricted cooperation; union closed system; core; prekernel; nucleolus
    JEL: C71
    Date: 2011–02–14
  6. By: Dylan Kneale; Ruth Lupton
    Abstract: This paper is a forerunner to an empirical study of neighbourhood effects on teenage parenthood using the British Cohort Study (BCS70). It reviews evidence for the existence of such effects within the quantitative 'neighbourhood effects' literature. It also draws on the wider literature on teenage parenthood to identify three explanatory frameworks for the phenomenon (opportunity costs, differential values and social networks), and to examine the qualitative and quantitative evidence that these mechanisms vary over space in ways that create distinctive 'place effects' at different spatial scales. We conclude that while there is good reason to believe that neighbourhood and wider area influences might be associated with planned or unplanned teenage pregnancies and with the propensity to continue to parenthood, statistical evidence is mixed, and relatively sparse for the UK. Policy makers need to draw on the wider body of literature, including qualitative studies and practitioner knowledge as well as 'hard' proof of neighbourhood effects. Finally we consider implications for policy. We critically interrogate the notion that area effects and area-based policies are necessarily related and instead offer some more specific conclusions as to what the evidence implies (and does not imply) for the purpose and design of policy interventions.
    Keywords: neighbourhood, neighbourhood effects, area effects, teenage parenthood
    JEL: I30
    Date: 2010–09
  7. By: Carol Newman (Institute for International Integration Studies, Trinity College Dublin); Finn Tarp (Department of Economics, University of Copenhagen); Katleen Van Den Broeck (Department of Economics, University of Copenhagen)
    Abstract: We explore the extent to which social capital can play a role in imparting information about the returns to saving where potential knowledge gaps and mistrust exists. Using data from Vietnam we find strong evidence to support the hypothesis that information transmitted via reputable social organizations increases the proportion of liquid assets held in the form of deposits that yield a return. Our results imply that targeting information on the benefits of deposit saving through formal networks or groups would be effective in increasing the number of households that save at grassroots level.
    Keywords: Household Savings, Social Capital, Information Failure, Risk Aversion
    JEL: D14 D71 D83 D91 O12 O16
    Date: 2011–01
  8. By: Helsley, Robert W. (University of California, Berkeley); Zenou, Yves (Stockholm University)
    Abstract: We examine how interaction choices depend on the interplay of social and physical distance, and show that agents who are more central in the social network, or are located closer to the geographic center of interaction, choose higher levels of interactions in equilibrium. As a result, the level of interactivity in the economy as a whole will rise with the density of links in the social network and with the degree to which agents are clustered in physical space. When agents can choose geographic locations, there is a tendency for those who are more central in the social network to locate closer to the interaction center, leading to a form of endogenous geographic separation based on social distance. Finally, we show that the market equilibrium is not optimal because of social externalities. We determine the value of the subsidy to interactions that could support the first-best allocation as an equilibrium and show that interaction effort and the incentives for clustering are higher under the subsidy program.
    Keywords: social networks, urban-land use, Bonacich centrality
    JEL: D85 R14 Z13
    Date: 2011–02
  9. By: Klarita Gerxhani (University of Amsterdam); Jordi Brandts (Autonoma University, Barcelona); Arthur Schram (University of Amsterdam)
    Abstract: We use laboratory experiments to investigate how employers develop social structures for sharing information about the trustworthiness of job candidates, when worker opportunism is possible. The experimental data show that substantial information sharing emerges. Two types of information networks are observed. One consists of 'anonymity networks' where information is anonymously and voluntarily provided as a collective good for all employers to use. The other type is a 'reciprocity network' where information sharing is driven by the rewarding of previously given information by the requestor. In both types, the extent of information sharing depends on the costs of providing it. Moreover, information sharing enables employers to recruit trustworthy workers which creates a high quality of trading, benefiting both employer and worker.
    Keywords: Social structure; Information networks; Recruitment; Experiments
    JEL: Z13 J23
    Date: 2011–02–11
  10. By: Jordi Brandts (Universitat Autonoma de Barcelona); Stanley S. Reynolds (University of Arizona); Arthur Schram (University of Amsterdam)
    Abstract: In the process of regulatory reform in the electric power industry, the mitigation of market power is one of the basic problems regulators have to deal with. We use experimental data to study the sources of market power with supply function competition, akin to the competition in wholesale electricity markets. An acute form of market power may arise if a supplier is pivotal; that is, if the supplier's capacity is required in order to meet demand. To be able to isolate the impact of demand and capacity conditions on market power, our treatments vary the distribution of demand levels as well as the amount and symmetry of the allocation of production capacity between different suppliers. We relate our results to a descriptive power index and to the predictions of two alternative models: a supply function equilibrium (SFE) model and a multi-unit auction (MUA) model. We find that pivotal suppliers do indeed exercise their market power in the experiments. We also find that observed behavior is consistent with the range of equilibria of the unrestricted SFE model and inconsistent with the unique equilibria of two refinements of the SFE model and of the MUA model.
    Keywords: Market Power; Electric Power Markets; Pivotal Suppliers; Experiments
    JEL: C92 D43 L11 L94
    Date: 2011–02–11
  11. By: Patel, Amrish (Department of Economics, School of Business, Economics and Law, Göteborg University); Cartwright, Edward (Department of Economics, University of Kent)
    Abstract: In a signalling model of conformity, we demonstrate that naïve observers, those that take actions at face value, constrain the set of actions that can possibly be social norms. With rational observers many actions can be norms, but with naïve observers only actions close to that preferred by the ideal type can be norms. We suggest, therefore, that the naïvety or inexperience of observers is an important determinant of norms and how they evolve.<p>
    Keywords: Signalling; Conformity; Social Norms; Naïve Beliefs
    JEL: D82 D83 Z13
    Date: 2011–02–18
  12. By: Efe Postalci (Department of Economics, Izmir University of Economics)
    Abstract: We introduce a network formation model based on the idea that individuals engage in production (or decide to participate in an action) depending on the similar actions of the people they observe in a society. We differentiate from the classical models of participation by letting individuals to choose, non cooperatively, which agents to observe. Observing behavior of others is a costly activity but provides benefits in terms of reduction in cost of production for the observing agent, which we take it as learning. In this non cooperative setting we provide complete characterization of both Nash stable and socially efficient network configurations. We show that every society can admit a stable network. Moreover, typically there will be multiple stable configurations that will be available for a society. While all stable networks will not be efficient we show that every efficient network will be stable.
    Keywords: Networks; Network formation, Self organization, Stable networks, Nash networks, Participation Games, Learning
    JEL: D85
    Date: 2010–11

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