nep-net New Economics Papers
on Network Economics
Issue of 2013‒12‒15
fifteen papers chosen by
Yi-Nung Yang
Chung Yuan Christian University

  1. Indirect Network Effects and the Quality Dimension: A Look at the Gaming Industry By Jin-Hyuk Kim; Jeffrey T. Prince; Calvin Qiu
  2. Foreign capital, Non-Traded Goods and Welfare in a Developing Economy in the presence of Externalities By Chaudhuri, Sarbajit
  3. Modeling Knowledge Networks in Economic Geography: A Discussion of Four Empirical Strategies By Tom Broekel; Pierre-Alexandre Balland; Martijn Burger; Frank van Oort
  4. Software Vulnerability Analysis in Cyber Security: A Network Structure Approach By Taylor J. Canann
  5. Vertical Networks, Integration, and Connectivity By P. Dogan
  6. Gas Network and Market: à la carte? By Miguel Vazquez; Michelle Hallack; Jean-Michel Glachant
  7. Optimal sales schemes for network goods By Alexei Parakhonyak; Nick Vikander
  8. Level of Access and Infrastructure Investment in Network Industries By M. Bourreau; P. Dogan; R. Lestage
  9. Experimental Games on Networks: Underpinnings of Behavior andEquilibrium Selection By Charness, Gary; Feri, Francesco; Meléndez-Jiménez, Miguel A; Sutter, Matthias
  10. Will Facebook save or destroy social capital? An empirical investigation into the effect of online interactions on trust and networks By Sabatini, Fabio; Sarracino, Francesco
  11. Competing for Customers in a Social Network (R) By Pradeep Dubey; Rahul Garg; Bernard De Meyer
  12. Service-based versus Facility-based Competition in Local Access Networks By M. Bourreau; P. Dogan
  13. Platforms and firm capabilities : a study of emerging global value chains By Ding, Ke
  14. Negligence and Two-Sided Causation By Keith N. Hylton; Haizhen Lin; Hyo-Youn Chu
  15. Who Disseminates Technology to Whom, How, and Why: Evidence from Buyer-Seller Business Networks By Tomohiro MACHIKITA; Yasushi UEKI

  1. By: Jin-Hyuk Kim (University of Colorado at Boulder); Jeffrey T. Prince (Department of Business Economics and Public Policy, Indiana University Kelley School of Business); Calvin Qiu (Independent)
    Abstract: We present theoretical and empirical analyses of indirect network effects for a hardware market with vertically differentiated complementary goods. We demonstrate that the heretofore typical use of aggregate software counts can mis-measure the presence and/or magnitude of indirect network effects. We show this is true when there is correlation along the quality dimension between the marginal utility of software and either 1) the response of software supply to an increase in installed base, or 2) conditional variation in software availability. We illustrate this idea using a simple monopolistic competition model, and through empirical analysis of the 7th-generation console market.
    Keywords: indirect network effects, vertical differentiation, video game industry
    JEL: L14 L82
    Date: 2013–05
  2. By: Chaudhuri, Sarbajit
    Abstract: A three-sector, three-factor general equilibrium model is developed for a small open developing economy where an inflow of foreign capital generates externalities in the presence of a non-traded final commodity. There are two types of capital and the efficiency of labour depends positively on the consumption of the non-traded commodity. Effects of inflows of foreign capital on social welfare and human capital formation are examined. The analysis finds that while capital that is used in all the sectors may improve welfare; capital used specifically in the non-traded sector is likely to affect social welfare adversely. These results can at least question the desirability of allowing entry of foreign capital in the non-traded final good sector that emanates externalities.
    Keywords: Foreign capital, externality, non-traded good, social welfare, human capital formation, general equilibrium.
    JEL: F21 H2 H23 H5 H53 J4 O1 O17
    Date: 2013–12–11
  3. By: Tom Broekel; Pierre-Alexandre Balland; Martijn Burger; Frank van Oort
    Abstract: The importance of network structures for the transmission of knowledge and the diffusion of technological change has been emphasized in economic geography. Since network structures drive the innovative and economic performance of actors in regional contexts, it is crucial to explain how networks form and evolve over time and how they facilitate inter-organizational learning and knowledge transfer. The analysis of relational dependent variables, however, requires specific statistical procedures. In this paper, we discuss four different models that have been used in economic geography to explain the spatial context of network structures and their dynamics. First, we review gravity models and their recent extensions and modifications to deal with the specific characteristics of networked relations. Second, we discuss the quadratic assignment procedure that has been developed in mathematical sociology for diminishing the bias induced by network dependencies. Third, we present exponential random graph models that not only allow dependence between observations, but also model such network dependencies explicitly. Finally, we deal with dynamic networks, by introducing stochastic actor oriented models. Strengths and weaknesses of the different approaches are discussed together with domains of applicability for the analysis of (knowledge) network structures and their dynamics.
    Keywords: Economic geography, knowledge networks, network models, quadratic assignment procedure, gravity model, exponential random graph model, stochastic actor-oriented model
    JEL: R11 O32 D85
    Date: 2013–12
  4. By: Taylor J. Canann (Department of Economics, Brigham Young University)
    Abstract: I analyze the effects of network structure on vulnerability disclosure policy. My analysis finds that the structure of the network of households can greatly effect the overall welfare of the economy. Specifically, I find that the distribution of the centrality of the nodes and the radius of the network have a significant effect on the optimal policy system.
    Keywords: Network Theory, Cyber Security, Disclosure Policy, Infromation Security, Network Centrality
    JEL: C7 O3
    Date: 2013–12
  5. By: P. Dogan
  6. By: Miguel Vazquez; Michelle Hallack; Jean-Michel Glachant
    Abstract: The institutional setting of open gas networks and markets is revealing considerably diverse and diverging roads taken by the US, the EU or Australia. We will show that this is explained by key choices made in the liberalization process. This liberalization is based on a redefinition of the property rights associated with transmission grid usage. That leads to different systems for the transmission services, as well as for the gas commodity trade, which in turn depends on the network services to get any market deal actually implemented. Not only do those choices depend on the physical architecture of the network, but also the perceived difficulties and costs to coordinate the actual transmission services through certain market arrangements.
    Keywords: network regulation, gas market, property rights, carriage systems
    Date: 2013–10
  7. By: Alexei Parakhonyak (National Research University Higher School of Economics, Moscow, Russia.); Nick Vikander (University of Copenhagen, Department of Economics.)
    Abstract: This paper examines the optimal sequencing of sales in the presence of network externalities. A firm sells a good to a group of consumers whose payoff from buying is increasing in total quantity sold. The firm selects the order to serve consumers so as to maximize expected sales. It can serve all consumers simultaneously, serve them all sequentially, or employ any intermediate scheme. We show that the optimal sales scheme is purely sequential, where each consumer observes all previous sales before choosing whether to buy himself. A sequential scheme maximizes the amount of information available to consumers, allowing success to breed success. Failure can also breed failure, but this is made less likely by consumers’ desire to influence one another’s behavior. We show that when consumers differ in the weight they place on the network externality, the firm would like to serve consumers with lower weights first. Our results suggests that a firm launching a new product should first target independent-minded consumers who can serve as opinion leaders for those who follow.
    Keywords: Product launch, Network externality, Sequencing of sales
    JEL: M31 D42 D82 L12
    Date: 2013
  8. By: M. Bourreau; P. Dogan; R. Lestage
  9. By: Charness, Gary; Feri, Francesco; Meléndez-Jiménez, Miguel A; Sutter, Matthias
    Keywords: Social and Behavioral Sciences
    Date: 2013–07–22
  10. By: Sabatini, Fabio; Sarracino, Francesco
    Abstract: Studies in the social capital literature have documented two stylised facts: first, a decline in measures of social participation has occurred in many OECD countries. Second, and more recently, the success of social networking sites (SNSs) has resulted in a steep rise in online social participation. Our study adds to this body of research by conducting the first empirical assessment of how online networking affects two economically relevant aspects of social capital, i.e. trust and sociability. We find that participation in SNSs such as Facebook and Twitter has a positive effect on face to face interactions. However, social trust decreases with online interactions. Several interpretations of these findings are discussed. --
    Keywords: social participation,online networks,Facebook,Twitter,social capital,broadband,digital divide,Internet-mediated communication
    JEL: C36 D85 O33 Z13
    Date: 2013–11–29
  11. By: Pradeep Dubey (Department of Economics, Stony Brook University); Rahul Garg (Opera Solutions, INDIA); Bernard De Meyer (PSE-Univesite Paris 1, Paris, FRANCE)
    Abstract: There are many situations in which a customer's proclivity to buy the product of any rm depends heavily on who else is buying the same product. We model these situations as non-cooperative games in which rms market their products to customers located in a \social network". Nash Equilibrium (NE) in pure strategies exist in general. In the quasi-linear version of the model, NE turn out to be unique and can be precisely characterized. If there are no a priori biases between customers and rms, then there is a cut-o level above which high cost rms are blockaded at an NE, while the rest compete uniformly throughout the network. Otherwise rms could end up as regional monopolies. We also explore the relation between the connectivity of a customer and the money rms spend on him. This relation becomes particularly transparent when externalities are dominant: NE can be characterized in terms of the invariant measures on the recurrent classes of the Markov chain underlying the social network. When we allow for cost functions of rms to be convex, instead of just linear, NE need no longer be unique as we show via an example. But uniqueness is restored if there is enough competition between rms or if their valuations of clients are anonymous. Finally we develop a general model of nonlinear externalities and show that existence of NE remains intact.
    Date: 2013–07
  12. By: M. Bourreau; P. Dogan
  13. By: Ding, Ke
    Abstract: This paper discusses globalization’s impact on production and distribution systems in emerging economies. On one hand, globalization has resulted in an increasing number of multinational corporations to adopt a platform strategy for their customers in emerging markets. On the other hand, developing countries have witnessed the integration of an increasing number of traditional marketplaces into a powerful distribution system, characterized as a specialized market system. Consequently, an unique industrial organization has developed in emerging economies, regarded as emerging global value chains (EGVCs). They comprise a large number of small firms together with a small number of large platform providers and display the "market" type general governance patterns. Firms in EGVCs are more likely to realize functional upgrading and grow into strong lead firms.
    Keywords: Developing countries, International economic relations, Globalization, Platform, Network effect, Emerging economies, Value chain governance
    JEL: L63 O14 O17
    Date: 2013–11
  14. By: Keith N. Hylton (Boston University Law School); Haizhen Lin (Department of Business Economics and Public Policy, Indiana University Kelley School of Business); Hyo-Youn Chu (Kyung Hee University)
    Abstract: We extend the economic analysis of negligence and intervening causation to "two-sided causation" scenarios. In the two-sided causation scenario the effectiveness of the injurer's care depends on some intervention, and the risk of harm generated by the injurer's failure to take care depends on some other intervention. We find that the distortion from socially optimal care is more severe in the two-sided causation scenario than in the one-sided causation scenario, and generally in the direction of excessive care. The practical lesson is that the likelihood that injurers will have optimal care incentives under the negligence test in the presence of intervening causal factors is low.
    Keywords: negligence, causation, proximate cause, intervening causal factor, optimal care
    JEL: D81 K00 K13 K41
    Date: 2013–08
  15. By: Tomohiro MACHIKITA (Institute of Developing Economies and Stanford University); Yasushi UEKI (Institute of Developing Economies)
    Abstract: This paper investigates the relationship between firm-level upgrading and buyer-seller business networks in order to better understand how and to whom technology transfer occurs. Using firm’s self-reported buyer and supplier network data from business–to–business (B2B) markets in Southeast Asia, this paper finds the following results: (1) Firms are more likely to achieve product and process innovation if they invest in inhouse R&D and transfer technology from their production partners; (2) product and process innovation varies considerably across different types of buyers and suppliers; (3) negative impacts of local suppliers suggest the importance of input quality for product and process innovation; and (4) large differences in product and process innovations among firms with similar buyers and suppliers can be explained by differences in embodied technology transfer even within narrowly defined production partners’ ownership. Data from technology transfer in buyer-seller business networks provide the basis for detecting the key drivers of industrial upgrading in the context of B2B markets in emerging economies.
    Keywords: embodied technology transfer; linked manufacturer–supplier analysis.
    JEL: O12 O14 O32 L14 F14
    Date: 2013–11

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