nep-net New Economics Papers
on Network Economics
Issue of 2011‒11‒21
seven papers chosen by
Yi-Nung Yang
Chung Yuan Christian University

  1. Experimentation in Two-Sided Markets By Martin Peitz; Sven Rady; Piers Treppers
  2. Virality, Network Effects and Advertising Effectiveness By Catherine Tucker
  3. Welfare effects of subsidizing a dead-end network of less polluting vehicles By Dietrich, Antje-Mareike; Sieg, Gernot
  4. A model of influence based on aggregation functions By Michel Grabisch; Agnieszka Rusinowska
  5. Coalition structures induced by the strength of a graph By Michel Grabisch; Alexandre Skoda
  6. Production Networks in East Asia: What We Know So Far By Kimura, Fukunari; Obashi, Ayako
  7. Networks and the disappearance of the intranational home bias By Aitor Garmendia; Carlos Llano; Asier Minondo; Francisco Requena

  1. By: Martin Peitz (Department of Economics, University of Mannheim); Sven Rady (Department of Economics, University of Bonn); Piers Treppers (Department of Economics, University of Munich)
    Abstract: We study optimal experimentation by a monopolistic platform in a two-sided market framework. The platform provider faces uncertainty about the strength of the exter- nality each side is exerting on the other. It maximizes the expected present value of its prot stream in a continuous-time infinite-horizon framework by setting participation fees or quantities on both sides. We show that a price-setting platform provider sets a fee lower than the myopically optimal level on at least one side of the market, and on both sides if the two externalities are of approximately equal strength. If the externality that one side exerts is suciently weaker than the externality it experiences, the opti- mal fee on this side exceeds the myopically optimal level. We obtain analogous results for expected prices when the platform provider chooses quantities. While the optimal policy does not admit closed-form representations in general, we identify special cases in which the undiscounted limit of the model can be solved in closed form.
    Keywords: Two-Sided Market, Network Eects, Monopoly Experimentation, Bayesian Learning, Optimal Control
    JEL: D42 D83 L12
    Date: 2011–11
  2. By: Catherine Tucker (MIT Marketing)
    Abstract: Many video ads are designed to go viral, so that the total number of views they receive depends on customers sharing the ads with their friends. This paper explores the relationship between achieving this endogenous reach and the effectiveness of the ad at persuading a consumer to purchase or adopt a favorable attitude towards a product. The analysis combines data on the real-life virality of 400 video ads, and crowd-sourced measurement of advertising effectiveness among 24,000 consumers. We measure effectiveness by randomly exposing half of these consumers to a video ad and half to a similar placebo video ad, and then surveying their attitudes towards the focal product. Relative ad persuasiveness drops on average by 10\% for every one million views the ad had received. Taking into account the advantages of increased reach, this means that there was a decline in overall advertising effectiveness at 3-4 million views. Importantly, ads that generated both views \emph{and} online engagement in the form of comments did not suffer from the same negative relationship. We show that such ads retained their efficacy because they achieved virality due to humor or visual appeal rather than because they were provocative or outrageous.
    Keywords: Social Networks, Video, Online Advertising
    JEL: M37
    Date: 2011–10
  3. By: Dietrich, Antje-Mareike; Sieg, Gernot
    Abstract: This article shows that in the presence of environmental externalities, it may be welfare enhancing to overcome a technological lock-in by a deadend technology through governmental intervention. It is socially desirable to subsidize a dead-end technology if its environmental externality is small relative to the one of the established technology, if the installed base and/or the strength of the network effect is small and if future generations matter. Applying our results to the private transport sector, governments promoting alternatives to gasoline-driven vehicles have to be aware of these opposing welfare effects. --
    Keywords: environmental externalities,network effects,private transport,technological change
    JEL: O33 L92 Q55
    Date: 2011
  4. By: Michel Grabisch (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Panthéon-Sorbonne - Paris I, EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris); Agnieszka Rusinowska (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Panthéon-Sorbonne - Paris I)
    Abstract: The paper concerns a dynamic model of influence in which agents have to make a yes-no decision. Each agent has an initial opinion, which he may change during different phases of interaction, due to mutual influence among agents. The influence mechanism is assumed to be stochastic and to follow a Markov chain. In the paper, we investigate a model of influence based on aggregation functions. Each agent modifies his opinion independently of the others, by aggregating the current opinion of all agents, possibly including himself. We provide a general analysis of convergence in the aggregation model and give more practical conditions based on influential players. We show that the process of influence converges always to one of the two consensus states, and there may exist other terminal classes, which are either cyclic or union of Boolean lattices. We give sufficient conditions for avoiding these additional terminal classes, based on properties of the graph of influence and influential players. We also introduce the notion of influential coalition and show that it can fully describe terminal classes. Some important families of aggregation functions are discussed.
    Keywords: Influence, aggregation function, convergence, terminal class, influential coalition, social network.
    Date: 2011–10
  5. By: Michel Grabisch (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Panthéon-Sorbonne - Paris I, EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris); Alexandre Skoda (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Panthéon-Sorbonne - Paris I)
    Abstract: We study cooperative games associated with a communication structure which takes into account a level of communication between players. Let us consider an undirected communication graph : each node represents a player and there is an edge between two nodes if the corresponding players can communicate directly. Moreover we suppose that a weight is associated with each edge. We compute the so-called strength of this graph and use the corresponding partition to determine a particular coalition structure. The strength of a graph is a measure introduced in graph theory to evaluate the resistance of networks under attacks. It corresponds to the minimum on all subsets of edges of the ratio between the sum of the weights of the edges and the number of connected components created when the set of edges is suppressed from the graph. The set of edges corresponding to the minimum ratio induces a partition of the graph. We can iterate the calculation of the strength on the subgraphs of the partition to obtain refined partitions which we use to define a hierarchy of coalition structures. For a given game on the graph, we build new games induced by these coalition structures and study the inheritance of convexity properties, and the Shapley value associated with them.
    Keywords: Communication networks, coalition structure, cooperative game.
    Date: 2011–07
  6. By: Kimura, Fukunari (Asian Development Bank Institute); Obashi, Ayako (Asian Development Bank Institute)
    Abstract: Production networks in East Asia, particularly in the manufacturing and machinery industries, are well recognized as the most advanced in the world, in terms of their magnitude, extensiveness, and sophistication. This paper tries to link various economic studies on related topics, to see how much we understand about production networks in East Asia. After providing a brief overview of international trade statistics, the paper reviews a number of academic papers concerning (i) the structure and mechanics of production networks, (ii) the conditions for production networks, and (iii) the properties and implications thereof.
    Keywords: fragmentation; agglomeration; vertical specialization; multinational enterprises; foreign direct investment
    JEL: F14 F15 F23
    Date: 2011–11–11
  7. By: Aitor Garmendia (Deusto Business School); Carlos Llano (Universidad Autónoma de Madrid); Asier Minondo (Deusto Business School); Francisco Requena (Universidad de Valencia)
    Abstract: Previous studies have shown that, not only countries, but also regions have a preference to trade within their administrative borders. Using unique trade flows data, we also find a large home bias in Spanish intranational trade. However, we show that this home bias disappears once we take into account the higher density of social and business networks within regions than between regions. We also find that the home bias does not disappear if intranational trade flows are measured in quantity rather than value. This fact might explain why previous studies on other European countries still find an intranational home bias, even when network effects are taken into account.
    Keywords: home bias, state borders, intranational trade, networks, business groups, Spain
    JEL: F12 F15
    Date: 2011–11

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