nep-net New Economics Papers
on Network Economics
Issue of 2012‒05‒02
five papers chosen by
Yi-Nung Yang
Chung Yuan Christian University

  1. Transmission of distress in a bank credit network By Yoshiharu Maeno; Satoshi Morinaga; Hirokazu Matsushima; Kenichi Amagai
  2. Estimating a Model of Strategic Network Choice: The Convenience-Store Industry in Okinawa By Mitsukuni Nishida
  3. Systemic risk on different interbank network topologies By Simone LENZU; Gabriele TEDESCHI
  4. Allocation rules for fixed and flexible networks: the role of players and their links By Borkotokey, Surajit; Sarangi, Sudipta
  5. Congestion Management in Electricity Networks: Nodal, Zonal and Discriminatory Pricing By Holmberg, Pär; Lazarczyk, Ewa

  1. By: Yoshiharu Maeno; Satoshi Morinaga; Hirokazu Matsushima; Kenichi Amagai
    Abstract: The European sovereign debt crisis has impaired many European banks. The distress on the European banks may transmit worldwide, and result in a large-scale knock-on default of financial institutions. This study presents a computer simulation model to analyze the risk of insolvency of banks and defaults in a bank credit network. Simulation experiments reproduce the knock-on default, and quantify the impact which is imposed on the number of bank defaults by heterogeneity of the bank credit network, the equity capital ratio of banks, and the capital surcharge on big banks.
    Date: 2012–04
  2. By: Mitsukuni Nishida
    Abstract: Spatial competition among multi-store firms is ubiquitous in a wide range of retail industries. However, little is known about how those firms optimize their networks of stores after a merger due to the computational burden of solving for an equilibrium in store networks. This paper proposes an empirical framework for estimating a game of network choice by two multi-store firms, which allows us to examine the impact of a hypothetical merger on store configurations, costs, and profits. The model explicitly incorporates a fundamental determinant of location choice for multi-store firms: the trade-off between the business-stealing effect and the cost- saving effect from clustering their own stores. The method integrates the static entry game of complete information with post-entry outcome data while using simulations to correct for the selection of entrants. I use lattice-theoretical results to deal with the huge number of possible network choices. Using unique cross-sectional data on store networks and revenues from the convenience-store industry in the Okinawa Island, Japan, I estimate the firms. revenue and cost functions. Parameter estimates suggest a retailer's trade-off between cost savings and lost revenues from clustering its stores is positive across markets and negative within a market. I find an acquirer of a hypothetical horizontal merger of two multi-store firms would decrease its number of stores in suburbs but increase its number in the city center, affecting consumers in different locations differently. The trade-off from clustering plays a central role in explaining this result.
    Date: 2012–04
  3. By: Simone LENZU (Kellogg Business School, Northwestern University, Evanston Illinois); Gabriele TEDESCHI (Universit… Politecnica delle Marche, Dipartimento di Scienze Economiche e Sociali)
    Abstract: In this paper we develop an interbank market with heterogeneous financial institutions that enter into lending agreements on different network structures. Credit relationships (links) evolves endogenously via a fitness mechanism based on agents performance. By changing the agent's trust on its neighbor's performance, interbank linkages self-organize themselves into very different network architectures, ranging from random to scale-free topologies. We study which network architecture can make the financial system more resilient to random attacks and how systemic risk spreads over the network. To perturb the system, we generate a random attack via a liquidity shock. The hit bank is not automatically eliminated, but its failure is endogenously driven by its incapacity to raise liquidity in the interbank network. Our analysis shows that a random financial network can be more resilient than a scale free one in case of agents' heterogeneity.
    Keywords: Interbank market, dynamic network, heterogeneity., network resilience
    Date: 2012–04
  4. By: Borkotokey, Surajit; Sarangi, Sudipta
    Abstract: We propose an allocation rule that takes into account the importance of players and their links and characterizes it for a fixed network. Unlike previous rules, our characterization does not require component additivity. Next, we extend it to flexible networks a la Jackson (2005). Finally, we provide a comparison with other fixed (network Myerson and Position value) and flexible network (player and link based) allocation rules through a number of examples.
    Keywords: Network games; Allocation rules; Cooperative games
    JEL: C71 D85 A14
    Date: 2011–12–02
  5. By: Holmberg, Pär (Research Institute of Industrial Economics (IFN)); Lazarczyk, Ewa (Research Institute of Industrial Economics (IFN))
    Abstract: Wholesale electricity markets use different market designs to handle congestion in the transmission network. We compare nodal, zonal and discriminatory pricing in general networks with transmission constraints and loop flows. We conclude that in large games with many producers who are allowed to participate in the real-time market the three market designs result in the same efficient dispatch. However, zonal pricing with counter-trading results in additional payments to producers in export-constrained nodes.
    Keywords: Congestion management; Wholesale electricity market; Transmission network; Nodal pricing; Zonal pricing with countertrading; Discriminatory pricing; Large game
    JEL: C72 D44 D61 L13 L94
    Date: 2012–04–20

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