nep-net New Economics Papers
on Network Economics
Issue of 2013‒10‒18
eighteen papers chosen by
Yi-Nung Yang
Chung Yuan Christian University

  1. Coordination and Equilibrium Selection in Games with Positive Network Effects By Alexander M. Jakobsen; B. Curtis Eaton; David Krause
  2. Platform Pricing under Dispersed Information By Jullien, Bruno; Pavan, Alessandro
  3. Search Diversion and Platform Competition By Hagiu, Andrei; Jullien, Bruno
  4. Optimal Design of Two-Sided Market Platforms: An Empirical Case Study of eBay By Aaron Bodoh-Creed; Jörn Boehnke; Brent R. Hickman
  5. Conforming and Non-conforming Peer Effects in Vaccination Decisions By Elizabeth Bodine-Baron; Sarah Nowak; Raffaello Varadavas; Neeraj Sood
  6. When You Know Your Neighbor Pays Taxes: Information, Peer Effects, and Tax Compliance By James Alm; Kim M. Bloomquist; Michael McKee
  7. Platform or Wholesale? Different Implications for Retailers of Online Product By Young Kwark; Jianqing Chen; Srinivasan Raghunathan
  8. Revealed Preference Tests of Network Formation Models By Khai Xiang Chiong
  9. Preferences, Homophily, and Social Learning By Ilan Lobel; Evan Sadler
  10. Nets: Network estimation for time series By Matteo Barigozzi; Christian T. Brownlees
  11. Network Neutrality under ISP duopoly: on the ability to assign capacity By Duarte Brito; Pedro Pereira; João Vareda
  12. Trade integration and trade imbalances in the European Union: a network pespective By Gautier M. Krings; Jean-François Carpantier,; Jean-Charles Delvenne
  13. Geography and social networks. Modelling the effects of territorial borders on policy networks By SOHN Christophe; CHRISTOPOULOS Dimitris; KOSKINEN Johan
  14. The Relation Between Global Migration and Trade Networks By Paolo Sgrignoli; Rodolfo Metulini; Stefano Schiavo; Massimo Riccaboni
  15. Strategic Planning of Large-scale, Multimodal and Time-definite Networks for Overnight Express Delivery Services By Xue, Yida
  16. Impact of Recent Crises and Disasters on Regional Production/Distribution Networks and Trade in Japan By Mitsuyo ANDO
  17. The evolution of the generalized differentiated services architecture and the changing role of the Internet engineering task force By Knieps, Günter
  18. Road pricing and public transport pricing reform in Paris: complements or substitutes? By Moez KILANI; Stefan PROOST; Saskia VAN DER LOO

  1. By: Alexander M. Jakobsen; B. Curtis Eaton (University of Calgary); David Krause
    Abstract: When agents make their choices simultaneously, network effects often give rise to a selection problem involving perfectly coordinated, Pareto-optimal equilibria. We characterize this selection problem, and introduce a generalized sequential choice model to address it. In this model, we show how expectation formation under imperfect information combines with network effects to form coordination cascades: ordered partitions of the agent space wherein coordination on one alternative is eventually optimal for all agents. Several theorems are proven regarding both the likelihood and extent of coordination under various parameter changes; in particular, we show that the degree to which agents can observe the choices of others is an important consideration. We also present numerical calculations which shed additional light on the coordination problem, and which suggest that sequential choice resolves, with high probability, the equilibrium selection problem efficiently.
    Date: 2013–10–11
  2. By: Jullien, Bruno (Toulouse School of Economics (CNRS-GREMAQ and IDEI)); Pavan, Alessandro (Northwestern University)
    Abstract: We study monopoly and duopoly pricing in a two-sided market with dispersed information about users' preferences. We first show how the dispersion of information introduces idiosyncratic uncertainty about participation rates and how the latter shapes the elasticity of the demands and thereby the equilibrium prices. We then study informative advertising campaigns and product design affecting the agents' ability to estimate their own valuations and/or the distribution of valuations on the other side of the market.
    Keywords: two-sided markets, dispersed information, platform competition, global-games, informative advertising
    JEL: D82
    Date: 2013–08
  3. By: Hagiu, Andrei (Harvard University); Jullien, Bruno (Toulouse School of Economics (IDEI & GREMAQ))
    Abstract: Platforms use search diversion in order to trade off total consumer traffic for higher revenues derived by exposing consumers to unsolicited products (e.g. advertising). We show that the entry of a platform competitor leads to higher (lower) equilibrium levels of search diversion relative to a monopoly platform when the degree of horizontal differentiation between platforms is intermediate (low). On the other hand, more intense competition between active platforms (i.e. less differentiation) leads to less search diversion. When platforms charge consumers fixed access fees, all equilibrium levels of search diversion under platform competition are equal to the monopoly level, irrespective of the nature of competition. Furthermore, platforms that charge positive (negative) access fees to consumers have weaker (stronger) incentives to divert search relative to platforms that cannot charge such fees. Finally, endogenous affiliation on both sides (consumers and advertising) leads to stronger incentives to divert search relative to the one-sided exogenous affiliation (vertical integration) benchmark, whenever the marginal advertiser derives higher profits per consumer exposure relative to the average advertiser.
    Date: 2013–09
  4. By: Aaron Bodoh-Creed (University of California at Berkeley); Jörn Boehnke (University of Chicago); Brent R. Hickman (University of Chicago)
    Abstract: While much is known about optimal design of auctions within the context of a single item for sale, little is known about optimal design of large platform markets like eBay and auto auction houses that house large numbers of concurrent auctions. We attempt a macro-level empirical market design exercise by combining a unique dataset on tablet sales collected from eBay over the course of a year with methodologies developed by Bodoh-Creed (2011) and Backus and Lewis (2013). The former proposes a tractable approach to studying dynamic auction markets when the number of participants on both sides is sufficiently large. The model also delivers predictions on optimal fee schedule design -- specifically, in terms of listing fees and percentage charges for a sale -- for an auction house wishing to maximize profits by attracting the appropriate mix of buyers and sellers into the market. We begin by empirically investigating the key assumptions of the model which deliver (computational and empirical) tractability, and find that they are reasonable. We then estimate consumer demand, market supply, and the distributions of market entrants (this part still in progress). These figures are plugged into the Bodoh-Creed (2011) framework in order to compute optimal fee schedules and draw comparisons to actual fee schedules, as well as to make policy prescriptions.
    Keywords: Online Auctions, eBay, Market Design, Large Markets
    JEL: C92 L33 L51 L92
    Date: 2013–09
  5. By: Elizabeth Bodine-Baron; Sarah Nowak; Raffaello Varadavas; Neeraj Sood
    Abstract: Traditional economic models of vaccination assume that agents free-ride on the vaccination decision of others. These models show that private vaccination rates are always below the social optimal and even large subsidies cannot achieve disease eradication. In this paper, we build a model where in addition to the desire to free-ride, agents have a desire to conform to the vaccination decisions of their peers. In this model privately optimal vaccination rates can be higher or lower than the social optimal and thus subsidies for vaccination are not always optimal. However, in certain cases, even small subsidies can achieve disease eradication.
    JEL: H2 H21 I1 I28
    Date: 2013–10
  6. By: James Alm; Kim M. Bloomquist; Michael McKee
    Abstract: In this paper, we argue that individuals are affected in their compliance behavior by the behavior of their “neighbors”, or those about whom they may have information, whom they may know, or with whom they may interact on a regular basis. Individuals seem more likely to file and to report their taxes when they believe that other individuals are also filing and reporting their taxes; conversely, when individuals believe that others are cheating on their taxes, they may well become cheaters themselves. We use experimental methods to test the role of such information about peer effects on compliance behavior. In one setting, we inform individuals about the frequency that their neighbors submit a tax return. In a second setting, we inform them about the number of their neighbors who are audited, together with the penalties that they pay. In both cases, we examine the impact of information on filing behavior and also on subsequent reporting behavior. We find that providing information on whether one’s neighbors are filing returns and/or reporting income has a statistically significant and economically large impact on individual filing and reporting decisions. However, this “neighbor” information does not always improve compliance, depending on the exact content of the information. Key Words: Tax evasion; Tax compliance; Behavioral economics; Experimental economics
    JEL: H26 C91
    Date: 2013
  7. By: Young Kwark (Warrington College of Business Administration, University of Florida); Jianqing Chen (Jindal School of Management, The University of Texas at Dallas); Srinivasan Raghunathan (Jindal School of Management, The University of Texas at Dallas)
    Abstract: Online retailing is dominated by a channel structure in which a retailer either buys products from competing manufacturers and resells to consumers (wholesale scheme) or lets manufacturers directly sell to consumers on its platform for a commission (platform scheme), and is characterized by easy access to product reviews to facilitate consumers' purchase decisions. We study how different types of information revealed by reviews affect the retailer under the wholesale scheme and platform scheme. We find that information provided by reviews on quality dimension homogenizes consumers' perceived utility differences between products and increases upstream competition, which benefits the retailer under the wholesale scheme but hurts the retailer under the platform scheme. Information provided by reviews on fit dimension heterogenizes consumers' estimated fits to products and softens upstream competition, which hurts the retailer under the wholesale scheme and benefits the retailer under the platform scheme. Together, we demonstrate that the quality information and fit information play very different roles in changing upstream competition, and whether the retailer benefits from reviews critically depends on its pricing scheme choice.
    Keywords: Online Product Reviews, Pricing Scheme, Competition
    JEL: L11 L15 D83
    Date: 2013–09
  8. By: Khai Xiang Chiong (Division of the Humanities and Social Sciences, California Institute of Technology)
    Abstract: This paper proposes a revealed preference test of network formation models. Specifically, I consider network formation models where agents are (1) strategic, (2) externalities are confined to within an agent’s k-neighborhood, where k can be varied. I show that this model can be tested using observation of a single network. I then derive necessary and sufficient condition under which the observed network is consistent with our strategic models of network formation. This non-parametric test takes the form of an algorithm involving the computation of color-preserving automorphisms of graphs. Building on the theoretical result, the test is implemented to calculate its’ statistical power and to the Banerjee et al. (2012)’s social network data.
    Keywords: Revealed preference, Networks formation, Social networks, Pair- wise stability, Model testing, Testable implications, Graph automorphism
    JEL: C14 C52 C72 D85
    Date: 2013–09
  9. By: Ilan Lobel (New York University Stern School of Business); Evan Sadler (New York University Stern School of Business)
    Abstract: We study a model of social learning in networks where agents have heterogeneous preferences, and neighbors tend to have similar preferences---a phenomenon known as homophily. Using this model, we resolve a puzzle in the literature: theoretical models predict that preference diversity helps learning, and homophily slows learning, while empirical work suggests the opposite. We find that the density of network connections determines the impact of preference diversity and homophily on learning. When connections are sparse, diverse preferences are harmful to learning, and homophily may lead to substantial improvements. In a dense network, preference diversity is beneficial. The conflicting findings in prior work result from a focus on networks with different densities; theory has focused on dense networks, while empirical papers have studied sparse networks. Our results suggest that in complex networks containing both sparse and dense components, diverse preferences and homophily play complementary, beneficial roles.
    Keywords: Social Networks, Learning, Homophily
    Date: 2013–09
  10. By: Matteo Barigozzi; Christian T. Brownlees
    Abstract: This work proposes novel network analysis techniques for multivariate time series. We define the network of a multivariate time series as a graph where vertices denote the components of the process and edges denote non zero long run partial correlations. We then introduce a two step LASSO procedure, called NETS, to estimate high dimensional sparse Long Run Partial Correlation networks. This approach is based on a VAR approximation of the process and allows to decompose the long run linkages into the contribution of the dynamic and contemporaneous dependence relations of the system. The large sample properties of the estimator are analysed and we establish conditions for consistent selection and estimation of the non zero long run partial correlations. The methodology is illustrated with an application to a panel of U.S. bluechips.
    Keywords: Networks, Multivariate Time Series, Long Run Covariance, LASSO
    JEL: C01 C32 C52
    Date: 2013–10
  11. By: Duarte Brito (Universidade Nova de Lisboa and CEFAGE-UE); Pedro Pereira (Autoridade da Concorrência and CEFAGE-UE); João Vareda (CEFAGE-UE)
    Abstract: We analyze the impact of network neutrality regulation on: (i) competition between CPs, and on (ii) ISPs. incentives to invest. We consider both competition between ISPs and between CPs and show that, if ISPs can o¤er network services of different quality to CPs, they prefer to sell the highest quality network services to the CP that collects the highest advertising revenues. We further show that the impact of network neutrality regulation on the investment in the quality of network services is potentially ambiguous and depends on: (i) whether ISPs are symmetric, and (ii) the ISPs.ability to assign network.s capacity to CPs. If ISPs are symmetric and have full discretion on how to allocate the level of quality of network services among CPs, investment and welfare are higher under the discriminatory regime.
    Keywords: Network Neutrality; Competition; Investment.
    JEL: L43 L51 L96 L98
    Date: 2013
  12. By: Gautier M. Krings (ICTEAM, Université Catholique de Louvain); Jean-François Carpantier, (CREA, Université de Luxembourg); Jean-Charles Delvenne (ICTEAM, CORE, Université Catholique de Louvain)
    Abstract: We study the ever more integrated and ever more unbalanced trade relationships between European countries. To better capture the complexity of economic networks, we propose two global measures that assess the trade integration and the trade imbalances of the European countries. These measures are the network (or indirect) counterparts to traditional (or direct) measures such as the trade-to-GDP (Gross Domestic Product) and trade deficit-to-GDP ratios. Our indirect tools account for the European inter-country trade structure and follow (i) a decomposition of the global trade flow into elementary flows that highlight the long-range dependencies between exporting and importing economies and (ii) the commute-time distance for trade integration, which measures the impact of a perturbation in the economy of a country on another country, possibly through intermediate partners by domino effect. Our application addresses the impact of the launch of the Euro. We find that the indirect imbalance measures better identify the countries ultimately bearing deficits and surpluses, by neutralizing the impact of trade transit countries, such as the Netherlands. Among others, we find that ultimate surpluses of Germany are quite concentrated in only three partners. We also show that for some countries, the direct and indirect measures of trade integration diverge, thereby revealing that these countries (e.g. Greece and Portugal) trade to a smaller extent with countries considered as central in the European Union network.
    Keywords: Trade network, Integration, Euro, Rose effect, Flow decomposition, Commute-time distance
    JEL: F14 F15 F32 C45
    Date: 2013
  13. By: SOHN Christophe; CHRISTOPOULOS Dimitris; KOSKINEN Johan
    Abstract: The present paper examines the importance of integrating geographic contextual effects into the analysis of social networks. By considering spatial structures as both produced by and productive of social relations, geographic space seems to be more than the extent on which places, actors or events are located and separated by distance. Territoriality, bordering processes, the sense of place, spatial inequalities, scalar relations and spatial connectivity are among the socio-spatial arrangements and practices that are likely to affect social action. The present empirical analysis thus focuses on policy interactions within the cross-border region of Lille because the spatial dimension particularly influences relations in this area. Specifically, we examine three spatial effects, namely, distance, territorial borders and cross-border territoriality, and we use exponential random graph models to model how these contextual variables influence policy interactions. By addressing multiple spatial effects, we develop a specific approach to control for the interactions that occur between these variables in order to elaborate on the complex processes that lead to the formation of social networks. We also explicitly examine how the spatial interaction function is affected by including in the analysis endogenous network effects, exogenous covariates and border factors. In this regard, we use a novel Monte Carlo-based goodness-of-fit summary in order to demonstrate that the predicted spatial interaction function of our model ? net of other effects ? matches the empirical spatial interaction function.
    Keywords: Policy networks; spatial effects; distance; border; territoriality; exponential random graph model
    Date: 2013–10
  14. By: Paolo Sgrignoli (IMT Lucca Institute for Advanced Studies); Rodolfo Metulini (IMT Lucca Institute for Advanced Studies); Stefano Schiavo (Department of Economics and Management, University of Trento); Massimo Riccaboni (IMT Lucca Institute for Advanced Studies)
    Abstract: In this paper we develop a methodology to analyze and compare multiple global networks. We focus our analysis on the relation between human migration and trade. First, we identify the subset of products for which the presence of a community of migrants significantly increases trade intensity. To assure comparability across networks, we apply a hypergeometric filter to identify links for which migration and trade intensity are both significantly higher than expected. Next we develop an econometric methodology, inspired by spatial econometrics, to measure the effect of migration on international trade while controlling for network interdependencies. Overall, we find that migration significantly boosts trade across sectors and we are able to identify product categories for which this effect is particularly strong.
    Keywords: Trade, Migration, networks, gravity model, spatial econometric
    JEL: F10 F22 C1 D85
    Date: 2013–10
  15. By: Xue, Yida
    Abstract: The rising demand of express delivery service (EDS) and fierce market competition motivate EDS providers to improve service quality by modifying current networks. This project-based dissertation focuses on strategic planning of a large-scale, multi-modal and time-definite EDS network for a top nationwide EDS provider in China, based on its current network. An air-ground Hub-and-Spoke (H/S) network with a fully interconnected/star shaped structure was established to provide trans-city overnight EDS among relatively developed cities in China. The corresponding models are a combination of the hub location problem with fixed cost and the hub set covering problem. The objective function is to minimize the sum of the hub-location fixed cost and transportation cost under the constraints that all demand nodes are covered by their "home" hub. First, the basic model with linear air cost was proposed. Next, the basic model was extended to include air service selection decisions (or aircraft fleet owner-ship decisions) under the consideration of a cost select function for the backbone air service. Finally, two ex-tension models were studied, one to obtain the optimal aircraft fleet composition (Ext.1) and the other under the constraints of current aircraft fleet composition (Ext.2). Due to the large scale of project instances, hybrid genetic algorithms (GAs) were applied to get desirable solutions in an acceptable time period, but without the guarantee of finding optimal solutions. In particular, the overall problem includes three kinds of decisions: 1) hub location decisions, 2) demand allocation decisions and 3) air service selection decisions. A specific algorithm was proposed for each kind of decision, namely, GAs,local search heuristics and integer programming, respectively. These three algorithms were invoked hierarchically and iteratively to solve the original problem. 5 improvement techniques were proposed to different procedures of the original algorithms in order to improve the performance of the algorithms. Computational tests were conducted to evaluate the performance of the proposed algorithms in terms of computational time and solution quality. Tests under small-scale instances with CAB data sets were conducted to evaluate the overall performance of the proposed algorithm by comparing the solutions with the optimal solutions generated by CPLEX. Tests under large-scale instances with AP data sets and project data sets were conducted to evaluate the performance of the proposed improvement techniques. Since neither the optimal solutions nor solutions by other algorithms under large-scale instances were available to serve as benchmarks,the performance of the tailored algorithms and that of the un-tailored simple GAs was compared. Information about the stability of the algorithms with values of the coefficient of variation (CV) and the reliability of the results with T-tests was also provided. The models and the tailored GAs were applied to real-life instances of the project. This study introduces how the input data were collected and modified and how to deal with pertinent problems. By analyzing and com-paring the basic solutions of Ext.1 and Ext.2, the study not only reveals some important features of the net-work, but also arrives at some general conclusions and provided a dynamic aircraft fleet update strategy to guide the implementation of the project. Finally, scenario planning was executed to help decision-makers balance between costs and corresponding decision risks by identifying critical uncontrollable and controllable factors.
    Date: 2013–07
  16. By: Mitsuyo ANDO (Faculty of Business and Commerce, Keio University)
    Abstract: This paper sheds light on domestic/international production networks in machinery industries and examines how the economic crisis and natural/technological disaster that Japan encountered in recent years affected the networks and trade, mainly from the viewpoint of Japan’s exports. More specifically, the paper first decomposes changes in machinery exports into extensive and intensive margins and then examines the probability of trade declines and recoveries, using a logit estimation, in order to capture the natures of international production/distribution networks under the crises, i.e., the 2008-2009 Global Financial Crisis (GFC) and the 2011 Great East Japan Earthquake (EJE). Discussion is also presented focusing on domestic activities as well as the impacts of the 2011 Thailand floods. Moreover, considering that the 2011 EJE is not only a natural disaster but also a technological disaster that seriously affected Japan’s agriculture and food exports, the impacts on their exports are investigated as well. Our analyses suggest that, regardless of whether demand shock or supply shock, the economic/natural disasters revealed the stability and robustness of production networks in machinery sectors, though their negative impacts are severe and transmitted through production networks at the beginning. At the same time, our analyses draw various policy implications from the experiences of these crises.
    Keywords: International production/distribution networks, economic crisis and natural/technological disaster, Japan
    JEL: F14 F23 L23
    Date: 2013–08
  17. By: Knieps, Günter
    Abstract: The changing role of the Internet Engineering Task Force (IETF) standard setting process from designing and implementing the best effort TCP/IP protocol as a universal standard towards a platform for dealing with the increasing need for variety in the design of a Quality of Service (QoS) differentiated traffic management architecture is demonstrated. The IETF´s contributions to a flexible open transmission architecture able to supply the required transmission qualities for the different applications provide the relevant pillars towards a Generalized Differentiated Service (DiffServ) architecture. Furthermore, the role of entrepreneurial traffic management within the Generalized DiffServ architecture and the division of labor between the IETF and entrepreneurial traffic management is analyzed. Within the umbrella architecture of Generalized DiffServ with the potential to combine basic elements of QoS differentiated traffic architectures a flexible framework for entrepreneurial traffic quality differentiation strategies is evolving. Its basic characteristic is market driven network neutrality with all applications bearing the opportunity costs of their required traffic capacities. As a consequence an artificial market split between best effort TCP and managed services would conflict with the integrated service approach of the IETF. Finally, the implementation of Generalized DiffServ via Next Generation networks is considered. --
    Date: 2013
  18. By: Moez KILANI; Stefan PROOST; Saskia VAN DER LOO
    Abstract: This paper explores reforms of pricing of private and public transport in Paris. Paris has used a policy of very low public transport prices and no road pricing. The Paris transport network is represented as a stylized concentric city with the choice between car, rapid rail, metro and busses as well as two income classes and different transport motives. The model is used to test what are the efficiency gains of introducing road pricing and of increasing public transit prices in the peak. Are both reforms re-enforcing each other or are they largely substitutes? We find that a zonal pricing scheme for the center of Paris combined with higher public transport fares in the peak perform best. The benefits of an overall capacity extension of public transport supply are much lower than the benefits of pricing reforms and could very well not pass the cost benefit test.
    Date: 2013–10

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