nep-net New Economics Papers
on Network Economics
Issue of 2012‒03‒08
eight papers chosen by
Yi-Nung Yang
Chung Yuan Christian University

  1. Price and quality decisions under network effects By Noemí Navarro
  2. On the Private Provision of Public Goods on Networks By Nizar Allouch
  3. Risk and Uncertainty Analysis with Networks of Decisions By Recke, Guido
  4. Endogenous Trading Networks By Daniele Condorelli; Andrea Galeotti
  5. A noncooperative model of network formation with decreasing productivity By Charoensook, Banchongsan
  6. Equilibrium Uniqueness in Network Games with Strategic Substitutes By Yann Rébillé; Lionel Richefort
  7. The Effect of Connectivity, Proximity and Market Structure on R&D Networks By Stuart McDonald; Mohamad Alghamdi; Bernard Pailthorpe
  8. Bilateral Trading in Networks By Daniele Condorelli; Andrea Galeotti

  1. By: Noemí Navarro (Département d’économique and GRÉDI, Université de Sherbrooke)
    Abstract: I analyze monopoly pricing and quality decisions under network effects. High quality premium and low quality punishment are found to depend on how the impact of marginal costs on quality relates to the intensity of the network effect and the optimism of the producer about final demand. More precisely, marginal costs have to be low enough (but not too low) with respect to the intensity of the network effects and/or the optimism about final demand so that higher prices reflect higher quality. A similar conclusion can be drawn about incentives for quality provision, whenever quality is considered endogenous together with price.
    Keywords: Network effects, optimal pricing, quality provision
    JEL: L12 L14 L15 D42 D82 D83 C7
    Date: 2012–02
  2. By: Nizar Allouch (Queen Mary, University of London)
    Abstract: This paper analyzes the private provision of public goods where consumers interact within a fixed network structure and may benefit only from their direct neighbors' provisions. We present a proof for existence and uniqueness of a Nash equilibrium with general best-reply functions. Our uniqueness result simultaneously extends similar results in Bergstrom, Blume, and Varian (1986) on the private provision of public goods to networks and Bramoullé, Kranton, and D'Amours (2011) on games of strategic substitutes to nonlinear best-reply functions. In addition, we investigate the neutrality result of Warr (1983) and Bergstrom, Blume, and Varian (1986) whereby consumers are able to offset income redistributions and tax-financed government contributions. To this effect, we establish that the neutrality result has a limited scope of application beyond regular networks.
    Keywords: Public goods, Uniqueness of Nash equilibrium, Network games, Neutrality, Bonacich centrality, Main eigenvalue
    JEL: C72 D31 H41
    Date: 2012–02
  3. By: Recke, Guido
    Abstract: In this paper an applied approach for analysing economic problems under risk and uncertainty based on networks of decisions (NODs) will be discussed. It can be shown that network of decision analysis can help to understand complex decision problems under risk and uncertainty in single case situations. A variety of decision criteria like expectation values and a special ANOVA can be used to get better knowledge about prediction and controllability of the decision problems.
    Keywords: networks of decisions, decision criteria, variance analysis, prediction, control, Risk and Uncertainty,
    Date: 2011–09
  4. By: Daniele Condorelli; Andrea Galeotti
    Abstract: We investigate the effects of a class of trading protocols on the architecture and efficiency properties of endogenously formed trading networks. In our model, the opportunity to sell valuable objects occurs randomly to different individuals. A sale can only be realized if two individuals are connected, directly or indirectly, but forming and maintaining a trading relation is a costly investment. When the outcome of trading is efficient and provides no intermediation rents, a tension between equilibrium and efficient networks emerges when the cost of forming a link is at an intermediate level. There are two types of inefficiencies. Either all equilibrium networks are under- connected when compared to efficient networks, or a multiplicity of equilibriam may exist and agents may fail to coordinate on the efficient equilibrium network
    Date: 2011–12–14
  5. By: Charoensook, Banchongsan
    Abstract: This paper develops a model of noncooperative network formation. Link formation is two-sided. Information flow is two-way. The paper is based on Bala and Goyal (2000) with the following difference in assumption: the value of information decays as it flows through each agent, and the decay is increasing and concave in the number of his links. Thus, an agent may choose to avoid accessing an agent who possess many links since he is aware of the decay incurred through this agent. This avoidance leads to two particular results in the analysis of Nash networks: (1) Nash networks are not always connected; (2) Nash networks do not exist under some parameters. Since disconnectedness is reminiscent of a common feature of real-world network, the model may explain why real-world networks may exhibit this feature even when there is no heterogeneity among agents. Discussion on this insight is provided.
    Keywords: Social Networks; Game Theory; Network Formation
    JEL: Z13 D85 C72
    Date: 2012–02–10
  6. By: Yann Rébillé (LEMNA - Laboratoire d'économie et de management de Nantes Atlantique - Université de Nantes : EA4272); Lionel Richefort (LEMNA - Laboratoire d'économie et de management de Nantes Atlantique - Université de Nantes : EA4272)
    Abstract: A local public goods game in weighted and directed networks is analyzed. Individual efforts are imperfect substitutes, players' preferences are heterogeneous and local externalities are non-uniform and asymmetric. Sufficient conditions under which the game admits a unique equilibrium are established in terms of the number of links between agents in the original network. It appears that these latter conditions for uniqueness are met if, and only if, the structure of relationships is \emph{productive}. That is, a parallel can be established between network games with strategic substitutes and the input-output theory pioneered by Wassily Leontief.
    Keywords: local public goods ; Nash equilibrium ; generalized degree ; productive matrix ; Leontief model
    Date: 2012–02–17
  7. By: Stuart McDonald (School of Economics, The University of Queensland); Mohamad Alghamdi; Bernard Pailthorpe
    Abstract: In a seminal paper, Goyal and Moraga-Gonzalez (2001) use an undirected network to characterize knowledge flows between firms engaging in research in an oligopolistic market. In their paper, firms are regarded as inhabiting a research joint venture (RJV), if they share the same edge of the network. These firms are allowed an R&D spillover of 1; the outside firms (firms not sharing an edge in the network) are permitted a constant knowledge spillover that is less than one. We begin our paper by showing that this last assumption has important consequences when dealing with R&D networks of size greater than or equal to six firms. We present examples of topologically non-equivalent networks that have the same degree of connectivity and generate identical outcomes in terms of R&D effort, firm profits and total welfare. We then modify their model so that R&D spillovers decrease as the number of shortest paths increases between any two firms. We show that under product differentiated Cournot and Bertrand competition, we have different outcomes for all economic variables. We also show that R&D effort increases with respect to the number of collaborative links if firms are in a weakly competitive market, whereas it declines if firms are in a more competitive market where products are closer substitutes. We also find that in more competitive markets there is a conflict between the stability and the efficiency of RJVs.
    Date: 2011
  8. By: Daniele Condorelli; Andrea Galeotti
    Abstract: We study an incomplete-information model of sequential bargaining for a single object, with the novel feature that agents are located in a network. In each round of trade, the current owner of the object either consumes it or makes a take-it-or-leave-it offer to some connected trader. Traders may buy in order to consume or to resale to others. We show that the equilibrium price dynamics is non-monotone and that traders that intermediate the object arise endogenously and attain a pro t. We also provide insights on how traders' equilibrium payoffs depend on their location in the network.
    Date: 2011–12–14

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