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on Network Economics |
| By: | Antonio Russo (KOF Swiss Economic Institute, ETH Zurich, Switzerland); Anna D’Annunzio (Sapienza University of Rome, Italy) |
| Abstract: | We investigate the implications of Network Neutrality regulation for Internet fragmentation. We model a two-sided market, where Content Providers (CPs) and consumers interact through Internet Service Providers (ISPs) and CPs sell consumers’ attention to advertisers. Under Network Neutrality, CPs can have their traffic delivered to consumers by ISPs for free, while in the Unregulated Regime they have to pay a (non-discriminatory) termination fee. In our model multiple impressions of an ad on a consumer are partially wasteful. Thus, equilibrium ad rates decrease when the audiences of CPs overlap. We show that universal distribution of content is always an equilibrium when Network Neutrality regulation is in place. In contrast, when competition among CPs strongly reduces their profits, in the Unregulated Regime ISPs can use termination fees to induce fragmentation and extract CPs’ extra profits. This occurs when repeated impressions of an ad rapidly lose value and consumers care for content availability to a relatively small extent. Our results suggest that the Unregulated Regime is never superior to Network Neutrality from a consumer surplus and social welfare point of view. |
| Keywords: | Network Neutrality, two-sided markets, Internet, advertising, fragmentation |
| JEL: | L1 D43 L13 L51 |
| Date: | 2013–11 |
| URL: | http://d.repec.org/n?u=RePEc:kof:wpskof:13-344&r=net |
| By: | Renaud Bourlès (Ecole Centrale Marseille (Aix-Marseille School of Economics), CNRS & EHESS); Yann Bramoullé (Aix-Marseille University (Aix-Marseille School of Economics), CNRS & EHESS) |
| Abstract: | We provide the first theoretical analysis of altruism in networks. Agents are embedded in a fixed, weighted network and care about their direct friends. Given some initial distribution of incomes, they may decide to support their poorer friends. We study the resulting non-cooperative transfer game. Our analysis highlights the importance of indirect gifts, where an agent gives to a friend because his friend himself has a friend in need. We uncover four main features of this interdependence. First, we show that there is a unique profile of incomes after transfers, for any network and any utility functions. Uniqueness in transfers holds on trees, but not on arbitrary networks. Second, there is no waste in transfers in equilibrium. In particular, transfers flow through indirect paths of highest altruistic strength. Third, a negative shock on one agent cannot benefit others and tends to affect socially closer agents first. In addition, an income redistribution that decreases inequality ex-ante can increase inequality ex-post. Fourth, altruistic networks decrease income inequality. In contrast, more altruistic or more homophilous networks can increase inequality. |
| Keywords: | Aix-Marseille University (Aix-Marseille School of Economics), CNRS & EHESS |
| Date: | 2013–11 |
| URL: | http://d.repec.org/n?u=RePEc:aim:wpaimx:1356&r=net |
| By: | Bouvard, Matthieu; Levy, Raphael |
| Abstract: | We consider a market where privately informed sellers resort to certification to overcome adverse selection. There is uncertainty about the certifier's ability to generate accurate information. The profit of a monopolistic certifier is an inverted U-shaped function of his reputation for accuracy: being perceived as more precise allows to attract more good sellers but a high expected precision also deters bad sellers. Since the certifier tries to reach a balanced reputation to attract both types, reputation has a disciplining effect when the certifier is perceived as insufficiently accurate, but gives incentives to decrease precision when he is perceived as “too" accurate. The impact of competition depends on whether sellers “multihome" or “singlehome". Under singlehoming, certifiers compete to attract good sellers, which makes higher reputation more valuable. Multihoming makes higher reputations less desirable because the competitor exerts a negative externality by providing extra information. Therefore, singlehoming attenuates bad reputation effects, while multihoming exacerbates inefficiencies. |
| Date: | 2013–10 |
| URL: | http://d.repec.org/n?u=RePEc:trf:wpaper:446&r=net |
| By: | Manuel Förster (CORE - Université Catholique de Louvain et Centre d'Economie de la Sorbonne); Ana Mauleon (CORE - Université Catholique de Louvain et CEREC - Université Saint-Louis - Bruxelles); Vincent Vannetelbosch (Università di Trento and LEM Scuola Superiore Sant'Anna) |
| Abstract: | We investigate the role of manipulation in a model of opinion formation where agents have opinions about some common question of interest. Agents repeatedly communicate with their neighbors in the social network, can exert some effort to manipulate the trust of others, and update their opinions taking weighted averages of neighbors' opinions. The incentives to manipulate are given by the agents' preferences. We show that manipulation can modify the trust structure and lead to a connected society, and thus, make the society reaching a consensus. Manipulation fosters opinion leadership, but the manipulated agent may even gain influence on the long-run opinions. In sufficiently homophilic societies, manipulation accelerates (slows down) convergence if it decreases (increases) homophily. Finally, we investigate the tension between information aggregation and spread of misinformation. We find that if the ability of the manipulating agent is weak and the agents underselling (overselling) their information gain (lose) overall influence, then manipulation reduces misinformation and agents converge jointly to more accurate opinions about some underlying true state. |
| Keywords: | Social networks, trust, manipulation, opinion leadership, consensus, Wisdom of crowds. |
| JEL: | D83 D85 Z13 |
| Date: | 2013–09 |
| URL: | http://d.repec.org/n?u=RePEc:mse:cesdoc:13065&r=net |
| By: | Edoardo Gaffeo; Massimo Molinari |
| Abstract: | This paper develops a network model of a stylized banking system in which banks are connected to one another through interbank claims, which allows us to study the diffusion of default avalanches triggered by an exogenous shock under a number of different assumptions on the degree of interconnectedness, level of capitalization, liquidity buffers, the size of the interbank market and fire-sales. We expand upon the existing literature by embedding two alternative resolution mechanisms. First, liquidations triggered by either illiquidity or insolvency-related distress implying asset sales and compensation of creditors. Second, a bail-in mechanism avoiding bank closure by forcing a recapitalization provided by bank creditors. Our model speaks to how contagion dynamics unravel via illiquidity-driven defaults in the first case and higher-order losses in the latter one. Within this framework, we show how counter-party liquidity risk externality can be resolved and put forward a macro-criterion to assess the adequacy of the liquidity ratio introduced with Basel III. |
| Keywords: | Systemic Risk, Banking Network, Resolution Procedures |
| JEL: | D85 G28 G33 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:trn:utwpem:2013/09&r=net |
| By: | Jouini, Elyès; Napp, Clotilde; Nocetti, Diego |
| Abstract: | In this paper we analyse the risk attitude of a group of heterogenous agents and we develop a theory of comparative collective risk tolerance. In particular, we characterize how shifts in the distribution of individual levels of risk tolerance affect the representative agent's degree of risk tolerance. In the model with efficient risk – sharing and two agents (e.g. a household) with isoelastic preferences we show that an increase of the level of risk tolerance of one of the agents might have an ambiguous impact on the aggregate level of risk tolerance; the latter increases for some levels of aggregate wealth while it decreases for other levels of aggregate wealth. Specifically, there are two possible shapes for aggregate risk tolerance as a function of the risk tolerance level of one of the agents: increasing curve or increasing then decreasing curve. For more general populations we characterize the effect of first order like shifts (individual levels of risk tolerance more concentrated on high values) and second order like shifts (more dispersion on individual levels of risk tolerance) on the collective level of risk tolerance. We also evaluate how shifts in the distribution of individual levels of risk tolerance impact the collective level of risk tolerance in a framework with exogenous egalitarian sharing rules. Our results permit to better characterize differences in risk taking behavior between groups and individuals and among groups with different distribution of risk preferences. |
| Keywords: | collective risk; heterogenous agents; risk tolerance; isoelastic preferences; aggregate wealth; risk preferences; |
| JEL: | D1 D81 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:dau:papers:123456789/5673&r=net |
| By: | Dominik Karos |
| Abstract: | We generalize the class of apex game by combining a winning coalition of symmetric minor players with�a collection of apex sets which can form winning coalitions only together with a fixed quota of minor players.� By applying power indices to these games and their subgames we generate players' preferences over coalitions which we use to define a coalition formation game.� We focus on strongly monotonic power indices and investigate under which conditions on the initial general apex game there are core stable coalitions in the resulting coalition formation game.� Besides several general results, we develop condition for the Shapley-Shubik index, the Banzhaf index, and the normalized Banzhaf index in particular.� It turns out that many statements can be easily verified for arbitrary collections of apex sets.� Nevertheless, we give some relations between the collection of apex sets and the set of core stable coalitions. |
| Keywords: | Apex Games, Core Stability, Hedonic Games, Strong monotony |
| JEL: | C71 G34 |
| Date: | 2013–10–28 |
| URL: | http://d.repec.org/n?u=RePEc:oxf:wpaper:680&r=net |
| By: | Jean-François Caulier (Centre d'Economie de la Sorbonne); Michel Grabisch (Centre d'Economie de la Sorbonne - Paris School of Economics); Agnieszka Rusinowska (Centre d'Economie de la Sorbonne - Paris School of Economics) |
| Abstract: | Most allocation rules for network games presented in the literature assume that the network structure is fixed. We put explicit emphasis on the construction of networks and examine the dynamic formation of networks whose evolution across time periods is stochastic. Time-series of networks are studied that describe processes of network formation where links may appear or disappear at any period. Moreover, convergence to an efficient network is not necessarily prescribed. Transitions from one network to another are random and yield a Markov chain. We propose the link-based allocation rule for such dynamic random network formation processes and provide its axiomatic characterization. By considering a monotone game and a particular (natural) network formation process we recover the link-based flexible network allocation rule of Jackson. |
| Keywords: | Dynamic networks, network game, link-based allocation rule, Markov chain, characterization. |
| JEL: | C71 D85 |
| Date: | 2013–08 |
| URL: | http://d.repec.org/n?u=RePEc:mse:cesdoc:13063&r=net |
| By: | Antje-Mareike Dietrich (Institute of Transport Economics, Muenster); Gernot Sieg (Institute of Transport Economics, Muenster) |
| Keywords: | environmental externalities, network effects, private transport, technological change |
| JEL: | L92 Q55 |
| Date: | 2013–10 |
| URL: | http://d.repec.org/n?u=RePEc:mut:wpaper:20&r=net |
| By: | Nicolas Curien |
| Abstract: | Network neutrality is often mistakenly assimilated with the non-discrimination of Internet usage. Although this rough view is acceptable at first sight, as far as blocking of content or clearly anti-competitive discrimination are concerned, it becomes confusing at second sight, when the efficiency of traffic management, on the supply side, or the differentiation of consumers’ requests, on the demand side, are considered. A neutrality principle ignoring traffic efficiency and demand differentiation through enforcing a strict homogeneity in the treatment of data packets on the network would prove inappropriate as it would downgrade the quality of service while not meeting consumers’ needs.In order to clarify the on-going debates, an unambiguous and formal definition of the concept of neutrality is required. In this contribution, a tentative definition is proposed, based on the economic principle of efficiency. Perfect neutrality is first shown as being efficient, i.e. welfare maximizing, in an ideal context C*. Then, by definition, the efficient network design in some real context C distinct from C* is called “C-imperfect neutralityâ€. Depending on the specification of context C, neutrality may involve some form of efficient discrimination and becomes a flexible concept as it translates into different settings in various technological or political environments and as it may change overtime in a given environment.This approach of “the most efficient imperfection†provides an adequate framework to discuss the main net neutrality issues presently at stake in the North-American and European scenes. Among those, we shall emphasize traffic management, segmentation of demand, funding of the next generation access networks, interference of governmental policies with networks’ operations, regulation of neutrality. |
| Keywords: | regulation |
| Date: | 2013–03–27 |
| URL: | http://d.repec.org/n?u=RePEc:erp:euirsc:p0337&r=net |