nep-net New Economics Papers
on Network Economics
Issue of 2012‒10‒27
eleven papers chosen by
Yi-Nung Yang
Chung Yuan Christian University

  1. Network Games under Strategic Complementarities By Mohamed Belhaj; Yann Bramoullé; Frédéric Deroian
  2. Failure to Launch in Two-Sided Markets: A Study of the U.S. Video Game Market By Zhou, Yiyi
  3. e-Book Platform Competition in the Presence of Two-Sided Network Externalities By Yabing Jiang
  4. Price Discrimination of Congestible Network Goods By Maxime Agbo; Marc Santugini; Jonathan W. Williams
  5. Russian interbank networks: main characteristics and stability with respect to contagion By A. V. Leonidov; E. L. Rumyantsev
  6. Germs, Social Networks and Growth By Alessandra Fogli; Laura Veldkamp
  7. Diversification of Geographic Risk in Retail Bank Networks: Evidence from Bank Expansion after the Riegle-Neal Act By Victor Aguirregabiria; Robert Clark; Hui Wang
  8. The Role of Social Networks and Peer Effects in Education Transmission By Sebastian Bervoets; Antoni Calvó-Armengol; Yves Zenou
  9. Markets in political influence: rent-seeking, networks and groups By Murray, Cameron K.
  10. Markets connectivity and financial contagion By Ruggero GRILLI; Gabriele TEDESCHI; Mauro GALLEGATI
  11. The Evolution of Control in the Digital Economy By F. Landini

  1. By: Mohamed Belhaj (Centrale Marseille (Aix-Marseille School of Economics), CNRS & EHESS); Yann Bramoullé (Department of Economics, Université Laval and Aix-Marseille University (Aix-Marseille School of Economics), CNRS & EHESS); Frédéric Deroian (Department of Economics, Université Laval and Aix-Marseille University (Aix-Marseille School of Economics), CNRS & EHESS)
    Abstract: We study network games with linear best-replies and strategic complementarities. We assume that actions are continuous but bounded from above. We show that there is always a unique equilibrium. We find that two key features of these games under small network effects may not hold when network effects are large. Action may not be aligned with network centrality and the interdependence between agents' actions may be broken.
    Keywords: Network Games, Strategic Complementarities, Supermodular Games, Bonacich Centrality.
    Date: 2012–10
  2. By: Zhou, Yiyi
    Abstract: In the dynamic two-sided market environment, overpricing one side of the market not only discourages demand on that side but also discourages participation on the other side. Over time, this process can lead to a death spiral. This paper develops a dynamic structural model of the video game market to study launch failures in two-sided markets. The paper models consumers’ purchase decisions for hardware platforms and affiliated software products and software firms’ entry and pricing decisions. This paper also develops a Bayesian Markov Chain Monte Carlo approach to estimate dynamic structural models. The results of the counterfactual simulations show that a failed platform could have survived if it had lowered its hardware prices and that it could not have walked out of the death spiral if it had subsidized software entry.
    Keywords: Bayesian Markov Chain Monte Carlo (MCMC) Estimation; Failure to Launch; Two-Sided Market; Indirect Network Effect; Forward-Looking Consumer; Video Game Market
    JEL: L11 L68 C61 C11
    Date: 2012–10–16
  3. By: Yabing Jiang (Lutgert College of Business, Florida Gulf Coast University)
    Abstract: The success of the Kindle e-book platform and the increased popularity of e-books among members of the reading community have attracted extensive interest in the high-tech industry. New platform providers are jumping in the market to compete for device and e-book sales. In this paper, we model the direct competition in the e-book platform market through a two-sided network externality model. We show that publishers can influence consumers’ e-book platform adoption decisions and the total e-book sales by strategically deciding the size of contents available on each platform.
    Keywords: analytical modeling, e-book technology, network externality, platform competition, product differentiation, two-sided market
    JEL: D43 D62 L11 L13 L82 M15
    Date: 2012–09
  4. By: Maxime Agbo; Marc Santugini; Jonathan W. Williams
    Abstract: We study second-degree price discrimination for a congestible network good. We show that the seller does not always provide distinct contracts (i.e., it is not always optimal to price discriminate) and that it is more likely for the low-valuation buyer to be excluded. Because of the network externality through congestion, no buyer receives an efficient allocation. In particular, the high-valuation buyer might be offered a higher or a lower quality (relative to the first-degree price discrimination offer). Moreover, with congestion and for values of the parameters for which all types are serviced, consumer surplus under second-degree price discrimination may be greater than consumer surplus under no price discrimination.
    Keywords: Congestion, Network, Price Discrimination
    JEL: D40 D62 D86 L14
    Date: 2012
  5. By: A. V. Leonidov; E. L. Rumyantsev
    Abstract: Systemic risks characterizing the Russian overnight interbank market from the network point of view are analyzed.
    Date: 2012–10
  6. By: Alessandra Fogli; Laura Veldkamp
    Abstract: Does the pattern of social connections between individuals matter for macroeconomic outcomes? If so, how does this effect operate and how big is it? Using network analysis tools, we explore how different social structures affect technology diffusion and thereby a country's rate of technological progress. The network model also explains why societies with a high prevalence of contagious disease might evolve toward growth-inhibiting social institutions and how small initial differences can produce large divergence in incomes. Empirical work uses differences in the prevalence of diseases spread by human contact and the prevalence of other diseases as an instrument to identify an effect of social structure on technology diffusion.
    JEL: E02 O1 O33
    Date: 2012–10
  7. By: Victor Aguirregabiria; Robert Clark; Hui Wang
    Abstract: The 1994 Riegle Neal (RN) Act removed interstate banking restrictions in the US. The primary motivation was to permit geographic risk diversification (GRD). Using a factor model to measure banks' geographic risk, we show that RN expanded GRD possibilities in small states, but that few banks took advantage. Using our measure of geographic risk and a revealed preference approach, we identify preferences towards GRD separately from the contribution of other factors to branch network configuration. Risk has a negative effect on bank value, but this has been counterbalanced by economies of density/scale, reallocation/merging costs, and concerns for local market power.
    Keywords: Geographic risk diversification; Retail banking; Oligopoly competition; Branch networks; Riegle Neal Act
    JEL: L13 L51 G21
    Date: 2012–10–15
  8. By: Sebastian Bervoets (CNRS, Greqam); Antoni Calvó-Armengol (This author is deceased (Date: 03 Nov 2007)); Yves Zenou (Stockholm University, IFN)
    Abstract: We propose a dynastic model in which individuals are born in an educated or uneducated environment that they inherit from their parents. We study the role of social networks on the correlation in the parent-child educational status independent of any parent-child interaction. We show that the network reduces the intergenerational correlation, promotes social mobility and increases the average education level in the population. We also show that a planner that encourages social mobility also reduces social welfare, hence facing a tradeoff between these two objectives. When individuals choose the optimal level of social mobility, those born in an uneducated environment always want to leave their environment while the reverse occurs for individuals born in an educated environment.
    Keywords: Social mobility, strong and weak ties, intergenerational correlation, education.
    JEL: I24 J13 Z13
    Date: 2012–03–30
  9. By: Murray, Cameron K.
    Abstract: Mainstream economic theories of rent-seeking and interest groups typically ignore the parallel, yet highly relevant, streams of research on social networks and groups. Incorporating these broader social and psychological theories into economic models of rent-seeking appear to be a promising avenue for developing an integrated theory of the market for political influence that predicts many of the observed stylised facts, and can better inform policy makers. Such a theory has the potential to predict the often conflicting findings of empirical studies - such as significant underinvestment in rent-seeking, loyalty of political donors and recipients, and the variation in the prevalence of the ‘revolving door’ across industries. This review highlights the shortcomings of basic rent-seeking theory and analyses how network and group concepts can improve the alignment between theory and evidence. Directions in research and policy analysis based on an integrated model are discussed.
    Keywords: Rent-seeking; networks; groups
    JEL: L14 D7 H0 A12 Z13 A14
    Date: 2012–10–19
  10. By: Ruggero GRILLI (Universit… Politecnica delle Marche, Dipartimento di Scienze Economiche e Sociali); Gabriele TEDESCHI (Universit… Politecnica delle Marche, Dipartimento di Scienze Economiche e Sociali); Mauro GALLEGATI (Universit… Politecnica delle Marche, Dipartimento di Scienze Economiche e Sociali)
    Abstract: In this paper we investigate the sources of instability in credit and financial systems and the effect of credit linkages on the macroeconomic activity. By developing an agent-based model, we analyze the evolving dynamics of the economy as a complex, adaptive and interactive system, which allows us to explain some key elements occurred during the recent economic and financial crisis. In particular, we study the repercussions of inter-bank connectivity on agents' performances, bankruptcy waves and business cycle fluctuations. Interbank linkages, in fact, let participants share risk but also creates a potential for one bank's crisis to spread through the network. The purpose of the model is, therefore, to build up the dependence among agents at the micro-level and to estimate their impact on the macro stability.
    Keywords: Systemic risk, business cycle, giant component, network connectivity, volatility
    Date: 2012–10
  11. By: F. Landini
    Abstract: Control over digital transactions has steadily risen in recent years, to an extent that puts into question the Internet’s traditional openness. In order to investigate the origins and effects of such change the paper formally model the historical evolution of digital control. In the model, the economy-wide features of the digital space emerge as a result of endogenous differences in culture (users’ preferences including motivation) and technology (platform designs). The model shows that: a) in the longrun there exist two stable cultural-technological equilibria in the digital economy: one with intrinsically motivated users and low control; and the other with purely extrinsically motivated users and high control; b) under a closed economy - i.e. before the opening of the network to commerce, the initial emergence of a low-control-intrinsic-motivation equilibrium can be explained by the specific set of norms and values that formed the early culture of the networked environment; and c) the opening of the network to commerce can indeed cause a transition to a high-control-extrinsicmotivation equilibrium, even if the latter is Pareto inferior. Although it is too early to say whether such a transition is actually taking place, these results call for a great deal of attention in evaluating policy proposals on Internet regulation.
    Keywords: : Internet control, Internet regulation, motivation, on-line law enforcement, technology, endogenous preferences, evolutionary games
    JEL: C73 D02 K00 L23
    Date: 2012

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