nep-net New Economics Papers
on Network Economics
Issue of 2011‒09‒16
nine papers chosen by
Yi-Nung Yang
Chung Yuan Christian University

  1. Information costs, networks and intermediation in international trade By Dimitra Petropoulou
  2. Vertical Economies and the Costs of Separating Electricity Supply – A Review of Theoretical and Empirical Literature By Roland Meyer
  3. The construction of a low cost airline network By Hüschelrath, Kai; Müller, Kathrin; Bilotkach, Volodymyr
  4. Heterogeneity, correlations and financial contagion By Fabio Caccioli; Thomas A. Catanach; J. Doyne Farmer
  5. Collective behavior in financial market By Thomas Kau\^e Dal'Maso Peron; Francisco Aparecido Rodrigues
  6. Low cost carriers and the evolution of the US airline industry By Hüschelrath, Kai; Müller, Kathrin
  7. Locational signals to reduce network investments in smart distribution grids: what works and what not? By Christine Brandstätt; Gert Brunekreeft; Katy Jahnke
  8. The Value of social networks in rural Paraguay By Ligon, Ethan A.; Schechter, Laura
  9. An economic analysis of online streaming: How the music industry can generate revenues from cloud computing By Thomes, Tim Paul

  1. By: Dimitra Petropoulou
    Abstract: This paper is motivated by the observation that intermediaries play an important role in international trade. The matching role of intermediaries is examined in a pairwise matching model with two-sided information asymmetry, where intermediaries develop contacts. Intermediation expands the set of matching technologies available to traders, while convexity in network-building costs with respect to network size gives rise to both direct and indirect trade in equilibrium. The trade pattern depends on the relative responsiveness of the direct and indirect matching technologies to information costs, which for some parameter values generates a non-monotonic relationship between information frictions and trade.
    Keywords: International trade ; Intermediation (Finance) ; Mathematical models
    Date: 2011
  2. By: Roland Meyer
    Abstract: Motivated by the European movement towards a separation of electricity networks from the competitive functions generation and supply this paper reviews theoretical and empirical literature on vertical synergies in electricity supply. In the analysis a clear distinction is made between four different unbundling options leading to different forms and magnitudes of synergy losses. Apart from coordination economies a main source of scope economies seems to result from a market risk effect if generation and retail are separated. Accordingly, the European policy of network unbundling (either transmission or distribution) results in synergy losses between 2 and 5 percent due to coordination losses, while an unbundling option that includes a separation between retail and generation, as observed in some U.S. states, may lead to a permanent cost increase of 15 percent and more due to a significant risk increase.
    Keywords: ownership unbundling, vertical integration, economies of scope
    Date: 2011–04
  3. By: Hüschelrath, Kai; Müller, Kathrin; Bilotkach, Volodymyr
    Abstract: The paper investigates the construction of a low cost airline network by analyzing JetBlue Airways' entry decisions into nonstop domestic U.S. airport-pair markets between 2000 and 2009. Adopting duration models with time-varying covariates, we find that JetBlue consistently avoided concentrated airports and targeted concentrated routes; network economies also affected entry positively. For non-stop entry into a route that has not been served on a non-stop basis before, our analysis reveals that the carrier focused on thicker routes and secondary airports, thereby avoiding direct confrontation with network carriers. Non-stop entry into existing non-stop markets, however, shows that JetBlue concentrated on longer-haul markets and avoided routes already operated by either other low cost carriers or network carriers under bankruptcy protection. --
    Keywords: Airline industry,network,entry,low cost carrier
    JEL: L11 L23 L93
    Date: 2011
  4. By: Fabio Caccioli; Thomas A. Catanach; J. Doyne Farmer
    Abstract: We consider a model of contagion in financial networks recently introduced in the literature, and we characterize the effect of a few features empirically observed in real networks on the stability of the system. Notably, we consider the effect of heterogeneous degree distributions, heterogeneous balance sheet size and degree correlations between banks. We study the probability of contagion conditional on the failure of a random bank, the most connected bank and the biggest bank, and we consider the effect of targeted policies aimed at increasing the capital requirements of a few banks with high connectivity or big balance sheets. Networks with heterogeneous degree distributions are shown to be more resilient to contagion triggered by the failure of a random bank, but more fragile with respect to contagion triggered by the failure of highly connected nodes. A power law distribution of balance sheet size is shown to induce an inefficient diversification that makes the system more prone to contagion events. A targeted policy aimed at reinforcing the stability of the biggest banks is shown to improve the stability of the system in the regime of high average degree. Finally, disassortative mixing, such as that observed in real banking networks, is shown to enhance the stability of the system.
    Date: 2011–09
  5. By: Thomas Kau\^e Dal'Maso Peron; Francisco Aparecido Rodrigues
    Abstract: Financial market is an example of complex system, which is characterized by a highly intricate organization and the emergence of collective behavior. In this paper, we quantify this emergent dynamics in the financial market by using concepts of network synchronization. We consider networks constructed by the correlation matrix of asset returns and study the time evolution of the phase coherence among stock prices. It is verified that during financial crisis a synchronous state emerges in the system, defining the market's direction. Furthermore, the paper proposes a statistical regression model able to identify the topological features that mostly influence such an emergence. The coefficients of the proposed model indicate that the average shortest path length is the measurement most related to network synchronization. Therefore, during economic crisis, the stock prices present a similar evolution, which tends to shorten the distances between stocks, indication a collective dynamics.
    Date: 2011–09
  6. By: Hüschelrath, Kai; Müller, Kathrin
    Abstract: The article studies the evolution of the U.S airline industry from 1995 to 2009 using T-100 traffic data and DB1B fare data from the U.S. Department of Transportation. Based on a differentiation in market size and major players, entry and exit, concentration, fares, service, costs and profits, the article provides a fresh look on recent developments in the structure, conduct and performance of the domestic U.S. airline industry in light of both the substantial growth of low cost carriers and severe internal and external shocks such as merger and bankruptcy activity or the recent recession. Unlike previous studies, a consistent split of the analysis in network carriers and low cost carriers is introduced. In general, we find that the competitive interaction between network carriers and low cost carriers increased substantially throughout the last decade and must be considered as the main driver of competition in the domestic U.S. airline industry. --
    Keywords: Airline industry,deregulation,network carrier,low cost carrier
    JEL: L40 L93
    Date: 2011
  7. By: Christine Brandstätt; Gert Brunekreeft; Katy Jahnke
    Abstract: The increasing share of distributed generation causes massive network investment. Energy and network pricing can help to reduce the investment need. This paper examines and discusses different models for locational pricing in the distribution network. Locational energy pricing is largely ineffective when part of the feed-in would not be subject to market prices due to renewable support schemes. Locational network charging works well to guide investment, but does little for short term system operation, which is crucial in smart grids. Both such explicit schemes require a substantial system reform which impedes feasibility. With smart contracts we propose a hybrid form. They are developing in smart grids anyhow and will incorporate locational elements. System reform is only modest since responsibility for tariff setting stays with the network operator. The regulator’s task would be to incentivize the network operator for efficient network investment and allowing maximum flexibility.
    Keywords: network investment, distribution networks, locational pricing, smart contracts
    Date: 2011–04
  8. By: Ligon, Ethan A.; Schechter, Laura
    Abstract: We conduct field experiments in rural Paraguay to measure the value of reciprocity within social networks in a set of fifteen villages. These experiments involve conducting dictator- type games; different treatments involve manipulating the information and choice that individuals have in the game. These different treatments allow us to measure and distinguish between different motives for giving in these games. The different motives we're able to measure include a general benevolence, directed altruism, fear of sanctions, and reciprocity within the social network. We're further able to draw inferences from play in the games regarding the sorts of impediments to trade which must restrict villagers' ability to share in states of the world when no researchers are present running experiments and measuring outcomes.
    Keywords: Agricultural and Resource Economics
    Date: 2011–02–01
  9. By: Thomes, Tim Paul
    Abstract: This paper investigates the upcoming business model of online streaming services allowing music consumers either to subscribe to a service which provides free-of-charge access to streaming music and which is funded by advertising, or to pay a monthly flat fee in order to get ad-free access to the content of the service accompanied with additional benefits. Both businesses will be launched by a single provider of streaming music. By imposing a two-sided market model on the one hand combined with a direct transaction between the streaming service and its flat-rate subscribers on the other hand, the investigation shows that it can be highly profitable to launch a business which is free-of-charge for subscribers if advertising imposes a weak nuisance to music consumers. If this is the case, and by imposing an endogenously determined level of advertising which will be provided by homogeneous advertisers, the analysis shows that the monopolistic streaming service increases the price for its flat-rate subscribers in order to stimulate free-of-charge demand and to capture higher revenues from advertisers. An extension of the model by illegal file-sharing reveals that an increase in copyright enforcement shifts rents from music consumers to the monopolistic provider, moreover a maximal punishment for piracy will be welfare-maximizing. --
    Keywords: Advertising media,Music industry,Online streaming,Piracy
    JEL: D42 L12 L82
    Date: 2011

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