nep-net New Economics Papers
on Network Economics
Issue of 2013‒02‒03
ten papers chosen by
Yi-Nung Yang
Chung Yuan Christian University

  1. Google, Facebook, Amazon, eBay: Is the internet driving competition or market monopolization? By Haucap, Justus; Heimeshoff, Ulrich
  2. Intermodal competition on some routes in transportation networks: The case of inter urban buses and railways By Bataille, Marc; Steinmetz, Alexander
  3. DebtRank-transparency: Controlling systemic risk in financial networks By Stefan Thurner; Sebastian Poledna
  4. Crossing Network versus Dealer Market: Unique Equilibrium in the Allocation of Order Flow By Jutta Dönges; Frank Heinemann; Tijmen R. Daniëls;
  5. Coalitions, tipping points and the speed of evolution By Newton, Jonathan
  6. Systemic Risk and Stability in Financial Networks By Daron Acemoglu; Asuman Ozdaglar; Alireza Tahbaz-Salehi
  7. Stochastic Trade Networks By Massimo Riccaboni; Stefano Schiavo
  8. On the Distribution of Links in the Interbank Network: Evidence from the e-Mid Overnight Money Market By Daniel Fricke; Thomas Lux
  9. Ecosystems perspective on financial networks: diagnostic tools By Eduardo Viegas; Misako Takayasu; Wataru Miura; Koutarou Tamura; Takaaki Ohnishi; Hideki Takayasu; Henrik Jeldtoft Jensen
  10. Luxembourg's specialisation as a financial centre within the global value networks of investment funds By DÖRRY Sabine

  1. By: Haucap, Justus; Heimeshoff, Ulrich
    Abstract: This paper discusses the general characteristics of online markets from a competition theory perspective and the implications for competition policy. Three important Internet markets are analyzed in more detail: search engines, online auction platforms, and social networks. Given the high level of market concentration and the development of competition over time, we use our theoretical insights to examine whether leading Internet platforms have non-temporary market power. Based on this analysis we answer the question whether any specific market regulation beyond general competition law rules is warranted in these three online markets. --
    Keywords: two-sided markets,online markets,digital economy,antitrust,e-commerce
    JEL: L12 L41 L81 L82 L86
    Date: 2013
  2. By: Bataille, Marc; Steinmetz, Alexander
    Abstract: This paper analyzes the effect of inter urban buses competing on a few routes against trains within an established railway network. In line with expectations, we show that this can lead to unprofitable train service on these routes. However, within an established railway network with every track being profitable, competition on just some tracks can result in a collapse of the entire network. External effects of individual routes on the railway network are fundamental for the profitability of the network. Hence, weakening these network effects might be crucial. As a result, efficient intermodal competition on some routes might cause the abandoning of other routes that are not facing any competition. This effect has to be taken into account by political actors when liberalization of inter urban bus travel is considered. --
    Keywords: Transportation,intermodal competition,network effects
    JEL: K2 L1 L5 R4
    Date: 2013
  3. By: Stefan Thurner; Sebastian Poledna
    Abstract: Banks in the interbank network can not assess the true risks associated with lending to other banks in the network, unless they have full information on the riskiness of all the other banks. These risks can be estimated by using network metrics (for example DebtRank) of the interbank liability network which is available to Central Banks. With a simple agent based model we show that by increasing transparency by making the DebtRank of individual nodes (banks) visible to all nodes, and by imposing a simple incentive scheme, that reduces interbank borrowing from systemically risky nodes, the systemic risk in the financial network can be drastically reduced. This incentive scheme is an effective regulation mechanism, that does not reduce the efficiency of the financial network, but fosters a more homogeneous distribution of risk within the system in a self-organized critical way. We show that the reduction of systemic risk is to a large extent due to the massive reduction of cascading failures in the transparent system. An implementation of this minimal regulation scheme in real financial networks should be feasible from a technical point of view.
    Date: 2013–01
  4. By: Jutta Dönges; Frank Heinemann; Tijmen R. Daniëls;
    Abstract: The allocation of order flow to alternative trading systems can be understood as a game with strategic substitutes between buyers on the same side of the market, as well as one of positive network externalities. We consider the allocation of order flow between a crossing network and a dealer market and show that small differences in traders' preferences generate a unique switching equilibrium, in which patient traders use the crossing network while impatient traders submit orders directly to the dealer market. Our model explains why assets with large turnovers and low price volatility are likely to be traded on crossing networks, while less liquid assets are traded on dealer markets.
    Keywords: Trading platform, order flow, strategic complements, strategic substitutes, global game
    JEL: C62 G10 G20
    Date: 2013–01
  5. By: Newton, Jonathan
    Abstract: This study considers pure coordination games on networks and the waiting time for an adaptive process of strategic change to achieve efficient coordination. Although it is in the interest of every player to coordinate on a single globally efficient norm, coalitional behavior at a local level can greatly slow, as well as hasten convergence to efficiency. For some networks, parameter values exist at which the effect of coalitional behavior changes abruptly from a conservative effect to a reforming effect. These effects are confirmed for a variety of stylized and empirical social networks found in the literature. For coordination games in which the Pareto efficient and risk dominant equilibria differ, polymorphic states can be the only stochastically stable states.
    Keywords: social networks; networks; conservatism; reform; social norm; coalition; learning; Stochastic stability; Evolution
    Date: 2013–01
  6. By: Daron Acemoglu; Asuman Ozdaglar; Alireza Tahbaz-Salehi
    Abstract: We provide a framework for studying the relationship between the financial network architecture and the likelihood of systemic failures due to contagion of counterparty risk. We show that financial contagion exhibits a form of phase transition as interbank connections increase: as long as the magnitude and the number of negative shocks affecting financial institutions are sufficiently small, more “complete” interbank claims enhance the stability of the system. However, beyond a certain point, such interconnections start to serve as a mechanism for propagation of shocks and lead to a more fragile financial system. We also show that, under natural contracting assumptions, financial networks that emerge in equilibrium may be socially inefficient due to the presence of a network externality: even though banks take the effects of their lending, risk-taking and failure on their immediate creditors into account, they do not internalize the consequences of their actions on the rest of the network.
    JEL: D85 G01
    Date: 2013–01
  7. By: Massimo Riccaboni (IMT Lucca Institute for Advanced Studies); Stefano Schiavo (School of International Studies and Department of Economics and Management, University of Trento)
    Abstract: This paper develops a simple network model to describe the dynamic of the intensive and extensive margin of international trade flows. The result is achieved by means of the combination of two mechanisms of proportional growth: the first (discrete) determines the formation of trade links, the second (continuous) governs trade intensity. We show that our setup is able to simultaneously match a large number of empirical regularities, such as the fraction of zero trade flows across pairs of countries or the high concentration of trade with respect to both products and destinations. Our findings suggest that stylized facts are strongly interconnected across different levels of aggregation of trade data, so that a unifying explanation is called for. By incorporating stochastic elements into standard trade models we can improve their ability to explain relevant facts about world trade.
    Keywords: international trade, networks, preferential attachment, urn models, proportionate growth.
    JEL: F14 F43 O25
    Date: 2013–01
  8. By: Daniel Fricke; Thomas Lux
    Abstract: Previous literature on statistical properties of interbank loans has reported various power-laws, particularly for the degree distribution (i.e. the distribution of credit links between institutions). In this paper, we revisit data for the Italian interbank network based on overnight loans recorded on the e-MID trading platform during the period 1999-2010 using both daily and quarterly aggregates. In con- trast to previous authors, we find no evidence in favor of scale-free networks. Rather, the data are best described by negative Binomial distributions. For quarterly data, Weibull, Gamma, and Exponential distributions tend to provide comparable ts. We find comparable re- sults when investigating the distribution of the number of transactions, even though in this case the tails of the quarterly variables are much fatter. The absence of power-law behavior casts doubts on the claim that interbank data fall into the category of scale-free networks
    Keywords: interbank market, network models
    JEL: G21 G01 E42
    Date: 2013–01
  9. By: Eduardo Viegas; Misako Takayasu; Wataru Miura; Koutarou Tamura; Takaaki Ohnishi; Hideki Takayasu; Henrik Jeldtoft Jensen
    Abstract: The economical world consists of a highly interconnected and interdependent network of firms. Here we develop temporal and structural network tools to analyze the state of the economy. Our analysis indicates that a strong clustering can be a warning sign. Reduction in diversity, which was an essential aspect of the dynamics surrounding the crash in 2008, is seen as a key emergent feature arising naturally from the evolutionary and adaptive dynamics inherent to the financial markets. Similarly, collusion amongst construction firms in a number of regions in Japan in the 2000s can be identified with the formation of clusters of anomalous highly connected companies.
    Date: 2013–01
  10. By: DÖRRY Sabine
    Abstract: Ruptures like the recent global financial crisis are inherent elements of our global ?securitised? financial system. Re-regulations and the maturing of the financial industry have led to re-organisation processes within the industry with far-reaching implications on international financial centres (IFCs). Surprisingly, little is known about the IFCs? localised organisational nature, social, and structural power relations. Despite the controversy about ?tax heavens?, empirical evidence suggests that IFCs without an economic hinterland have developed strong local competencies and competitive advantages besides regulation aspects. Although dependent on foreign national economies, their specialisation capacitates them to offer finance-related services to a favourable cost-benefit ratio. The IFC Luxembourg seems to exemplify such a case. It has specialised in administrating a particular type of securities: (cross-border) investment funds. The paper does not only employ the GPN approach on finance but also innovatively links it with social network approaches, suggesting a new perspective to analysing locally anchored practices and dynamics in order to better understand ?the global? of today?s financial system.
    Keywords: international financial centre ; global value chains; global production networks; social networks; social capital; investment funds; Luxembourg
    JEL: G15 O16 P16 R11 R51
    Date: 2012–12

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