nep-net New Economics Papers
on Network Economics
Issue of 2014‒01‒10
sixteen papers chosen by
Yi-Nung Yang
Chung Yuan Christian University

  1. Estimation of switching costs and network effects in mobile telecommunications in Poland By Czajkowski, Mikołaj; Sobolewski, Maciej
  2. The role of network sharing in transforming the operator business: Impact on profitability and competition By Mölleryd, Bengt G.; Markendahl, Jan
  3. Regulations for and against cooperation in smallcells: How could regulations stimulate co-opetition by supporting sharing? By Ghanbari, Amirhossein; Markendahl, Jan; Widaa, Ashraf Awadelakrim
  4. A model of financial contagion with variable asset returns may be replaced with a simple threshold model of cascades By Teruyoshi Kobayashi
  5. The Multiplex Structure of Interbank Networks By Leonardo Bargigli; Giovanni Di Iasio; Luigi Infante; Fabrizio Lillo; Federico Pierobon
  6. The dilemma of electronic books in the mobile age in Taiwan By Tseng, Kuo-Feng
  7. The effects of asymmetric regulation on the quality of broadband networks By Kocsis, Viktória
  8. Business Impact Analysis of a Mediator between the Network Management Systems of the IP/MPLS Network and the Transport Network By A. Mohammad Hassan; Jorn Altmann
  9. Statistical Equilibrium Models for Sparse Economic Networks By Leonardo Bargigli
  10. Network Topology, Higher Orders of Stability and Efficiency By Chakrabarti, Subhadip; Tangsangasaksri, Supanit
  11. Governing network neutrality: Public perception and policy capacity By Shin, Donghee
  12. Net neutrality at internet backbone provider level By Baglioni, Laura; Calabrese, Armando; Ghiron, Nathan Levialdi
  13. Regulation, investment and efficiency in the transition to next generation networks: Evidence from the European Union By Rajabiun, Reza; Middleton, Catherine
  14. The impact of regulation and competition on the adoption of fibre-based broadband services: Recent evidence from the European Union member states By Briglauer, Wolfgang
  15. How to price the unbundled local loop in the transition from copper to fiber access networks? By Neumann, Karl-Heinz; Vogelsang, Ingo
  16. Broadband regulation and government investment in nationwide ultra fast fribre broadband networks: Evidence from New Zealand By Howell, Bronwyn

  1. By: Czajkowski, Mikołaj; Sobolewski, Maciej
    Abstract: In this paper we utilize discrete choice experiment method to identify and measure switching costs and network effects in mobile telephony in Poland. Based on hypothetical choices consumers make we construct a conditional random parameters multinomial logit model to analyze their preferences. In our choice design we explicitly account for status quo inertia, number portability, operator brand, network distribution of most frequently called parties and price of on-net and off-net calls. Stated preference approach allows us to calculate marginal rates of substitution and hence implicit prices of the non-price attributes used to describe choices and switching behavior. Results of our study indicate that although choices of mobile operators are largely driven by price of calls, switching costs and network effects have and strong impact on utility of subscribers. In particular users assign positive value to their mobile phone number and the size of family and friends group in the same network. The monetary value of phone number is significantly higher among individual entrepreneurs then residential subscribers. In our model switching behavior is not discouraged by brand loyalty which turned out to be insignificant. Instead subscribers follow status quo inertia which reflects uncertainty associated with new operator. Therefore we conclude that despite introduction of mobile number portability, switching costs continue to be an important issue in telecommunications markets. On recommendations level, we argue that regulatory and competition policies should continue to reduce uncertainty associated with changing operator by ensuring service and platform compatibility and reducing tariff complexity. In light of our results we recommend tariffs to be non-discriminatory so that operators are unable to utilize network effects in a way which discourages switching behavior. --
    Keywords: Switching costs,network effects,mobile telecommunications,mobile number portability,brand valuation,stated preference methods,non-market valuation methods,choice experiment,multinomial conditional logit model,random parameters model
    JEL: L1 L86 O3
    Date: 2013
  2. By: Mölleryd, Bengt G.; Markendahl, Jan
    Abstract: This paper focuses on network sharing on mobile networks and examines the impact on profitability and competition. Network sharing refers to that operators collaborates with its competitors on part of the production of mobile services, and it could vary from passive sharing, like sharing of sites or basic facilities, to active sharing, like radio access networks or even entire networks. The paper takes a global scope on examining the extent of network sharing. The emergence of a sector with dedicated infrastructure or tower companies are documented through a mapping of listed companies' which facilities a detailed financial analysis. The rationale for network sharing could be grouped into three factors: 1) lower cost and reduce capital spending as well as to raise capital, 2) improve coverage and services, and 3) reduce the negative impact on the environment. The increased usage of network sharing throughout the world signals that it is going to develop and in the longer run move focus from infrastructure based to service based competition. Although operators have been able to lower network operation cost the impact on profitability varies. The dedicated tower and infrastructure companies manage considerable higher debt ratios compared to operators potentially having a transformative impact on the operator business. Despite an extensive usage of network sharing - where competitors are collaborating - competition on the retail market prevails. A potential spillover effect from network collaboration to the downstream market is a risk, but the social benefit with larger coverage and improved capacity has so far given extensive support for network sharing. --
    Keywords: Network sharing,mobile network operators,infrastructure,tower companies,operational and capital expenditures,competition,profitability,financial gearing
    Date: 2013
  3. By: Ghanbari, Amirhossein; Markendahl, Jan; Widaa, Ashraf Awadelakrim
    Abstract: Cooperation between Mobile Network Operators (MNO), as competing entities, has become a solution to overcome lack of revenue by reducing expenditures during recent years; where theses cooperation patterns consist of horizontal and vertical models. As much as all these models apply in macrocell networks, they are all applicable in smallcell networks as well, but it is observed that smallcells are still deployed in single operator patterns. On the other hand, telecom regulatory authorities are always concerned about cooperation between operators since they prefer fare distribution of market power among competing operators. The idea to stimulate competition, in order to bring maximum profit for end users, is an ultimate goal for regulators. At the same time, regulators are worried if a high level of collaboration between operators introduces new dilemmas such as creating closed clubs with significant market power. In this paper we first discuss interpretations of national European telecom regulators from the European electronic communications regulatory framework, which is considered as a reference for all countries. Surprisingly, we see that European countries have different interpretations of the same European framework while transposing it into their regulations. Next, the effect of these regulations that are either pro or against cooperation in smallcell networks is investigated. We conclude by presenting the idea that European regulators may need to revise their legislations by considering regulation for promoting smallcell wholesale network sharing as the proper solution. --
    Date: 2013
  4. By: Teruyoshi Kobayashi (Graduate School of Economics, Kobe University)
    Abstract: I show the equivalence between a model of financial contagion and the widely-used threshold model of global cascades proposed by Watts (2002). The model financial network comprises banks that hold risky external assets as well as interbank assets. It turns out that there is no need to construct the balance sheets of banks if the shadow threshold of default is appropriately defined in accordance with the stochastic fluctuations in external assets.
    Keywords: financial network, cascades, financial contagion, systemic risk
    JEL: G01 G18
    Date: 2013–12
  5. By: Leonardo Bargigli (DISEI, Università degli Studi di Firenze); Giovanni Di Iasio (Bank of Italy); Luigi Infante; Fabrizio Lillo; Federico Pierobon (Bank of Italy - Banking and Finance Supervision Department)
    Abstract: The interbank market has a natural multiplex network representation. We employ a unique database of supervisory reports of Italian banks to the Banca d'Italia that includes all bilateral exposures broken down by maturity and by the secured and unsecured nature of the contract. We find that layers have different topological properties and persistence over time. The presence of a link in a layer is not a good predictor of the presence of the same link in other layers. Maximum entropy models reveal different unexpected substructures, such as network motifs, in different layers. Using the total interbank network or focusing on a specific layer as representative of the other layers provides a poor representation of interlinkages in the interbank market and could lead to biased estimation of systemic risk.
    Keywords: interbank market, network theory, systemic risk
    JEL: E51 G21 C49
    Date: 2013
  6. By: Tseng, Kuo-Feng
    Abstract: As the voice profits of the mobile phone companies continuously decline in Taiwan, they need to find other revenues from the digital contents to survive in the mobile age. The mobile phone companies had created several online platforms to sell digital video, music and books. Especially in the past two years, as more and more customers had the big screens of portable tablet PC or smart phones, the sale of the e-books becomes the major marketing strategy to promote the penetration of smart phones in Taiwan. However, few e-books were available in the mobile online platforms in the past few years, so this study conducted the survey of the book publishing industry to understand the major factors. The results show: first, few copyrights of the popular oversea books are available; second, only the book conglomerate are willing to take the risk to launch the e-book services; third, currently the sales of the e-books are not able to compensate the costs; fourth, there is no such a platform to let all kind of e-books available in Taiwan. --
    Keywords: e-book,digital book,business model,industry survey,mobile device
    Date: 2013
  7. By: Kocsis, Viktória
    Abstract: Network operators of competing infrastructures in European electronic communications markets face asymmetric regulation: incumbent telecommunications firms are required to open their networks for retail broadband competition, while cable companies have no such obligation. Furthermore, for historical reasons, cable companies have better quality networks thanks to the DOCSIS 3.0 technology than DSL-based telecom firms. How would the market structure of electronic communications markets and the quality of networks develop in the presence of asymmetric regulation and original quality differences? Based on a location model for product differentiation, i find that access revenues can compensate incumbent telecom firms for the loss due to having a lower quality network than cable companies. Therefore, access obligation reduces the incentives of telecom firms to compete with cable companies by upgrading network quality. In the absence of retail competitors without networks, however, telecom firms need to upgrade network quality to be able to remain competitive with cable companies. Furthermore and in line with the existing literature, the exclusion of retail competitors is more likely in the presence of higher access prices and stronger substitutuion between firms' products. Finally, if the original differences between network quality is large and high returns on investments are unlikely, telecom firms may not be able to invest sufficiently and lose substantially from their market shares. --
    Keywords: Telecommunications,Investments,Quality,Access regulation,Asymmetric regulation
    JEL: L51 L96 L10 K23
    Date: 2013
  8. By: A. Mohammad Hassan (College of Engineering, Seoul National University); Jorn Altmann (College of Engineering, Seoul National University)
    Abstract: IP/MPLS service providers rely on transport networks to provide bandwidth on demand with the lowest possible provisioning time. However, due to the static nature of transport networks and the differences in the communication languages and switching systems, the IP/MPLS and transport network management systems are isolated from each other. To address this issue, a mediator called "ONE Adapter" has been developed. It allows automatic interaction and coordination of network management functions between the two network management systems.The objective of this paper is to capture the deployment impact of the mediator on the business of IP/MPLS providers and transport service providers, and to illustrate the changes in the market. To achieve that, we have conducted a survey of the literature on business models in the telecommunication sector and analyzed the service offerings of 15 leading telecommunication operators.The result is a description of the current Internet ecosystem, includingthe market players, their roles, and relationships. Furthermore, our results suggest that amediator deployment will change the way how the IP/MPLS network and the transport network interact. It will allow new players to enter the market and new business models to emerge. This study will help IP/MPLS and transport service providers to anticipate the changes in the market due to a NMS mediator entering the market.
    Keywords: Network Service Provider, IP/MPLS Network, New Technology Deployment Impact, Business Model, Internet Ecosystem.
    JEL: L22 L26 L86 L96 M15 M21
    Date: 2013–10
  9. By: Leonardo Bargigli (DISEI, Università degli Studi di Firenze)
    Abstract: Real markets can be naturally represented as networks, and they share with other social networks the fundamental property of sparsity, whereby agents are connected by l = O (n) relationships. The exponential networks model introduced by Park and Newman can be extended in order to deal with this property. When compared with alternative statistical models of a given real network, this extended model provides a better statistical justification for the observed network values. Consequently, it provides more reliable maximum entropy estimates of partially known networks than previously known ME techniques.
    Keywords: networks
    JEL: C49 C63 D85
    Date: 2013
  10. By: Chakrabarti, Subhadip; Tangsangasaksri, Supanit
    Abstract: Stable networks of order r where r is a natural number refer to those networks that are immune to coalitional deviation of size r or less. In this paper, we introduce stability of a finite order and examine its relation with efficient networks under anonymous and component additive value functions and the component-wise egalitarian allocation rule. In particular, we examine shapes of networks or network architectures that would resolve the conflict between stability and efficiency in the sense that if stable networks assume those shapes they would be efficient and if efficient networks assume those shapes, they would be stable with minimal further restrictions on value functions.
    Keywords: Stability of order r, Efficiency, Network architecture
    JEL: C62 C71
    Date: 2014–01–06
  11. By: Shin, Donghee
    Abstract: Beyond technical matters, the network neutrality debate is closely tied to social, political, and economic debate over networks and the duties and the rights of various stakeholders. The study contextualizes the issue in terms of policy, innovation, values, and the society of Korean context. Focusing on user perspective, it analyzes the policy effectiveness of current network neutrality by analyzing user perception. A model is proposed to empirically test the policy effectiveness by incorporating factors representing network neutrality. The factors are drawn from the belief of people's perceived concepts on network neutrality. The findings show that while competition and regulation are the two main factors constituting network neutrality, both factors influence the formation of attitude toward policy effectiveness differently. Policy and managerial implications are discussed based on the model. Overall, this study provides in-depth analysis and heuristic data on the user drivers, industry dynamics, and policy implication within the network neutrality ecosystem. --
    Keywords: Network neutrality,Policy capacity,Korea,User-centered policy analysis
    Date: 2013
  12. By: Baglioni, Laura; Calabrese, Armando; Ghiron, Nathan Levialdi
    Abstract: This paper analysis the Internet interconnection market and combine the main technical (i.e. service quality) and economic aspects (i.e. profits and utility) characterizing relations between market players (end users, EUs; Internet Service Providers, ISPs; Internet Backbone Providers, IBPs) in order to determine possible economic outcomes in the strategic interaction between them. The proposed model enables a comparison to be made between expected values of social welfare (i.e. EU utility and profits of both ISPs and IBPs) on the current scenario (Best Effort) and considering two classes of priority in the traffic routing. Finally we illustrate the model's applicability to an example of network. --
    Keywords: Net Neutrality,pricing,competition,service quality,Internet interconnection
    Date: 2013
  13. By: Rajabiun, Reza; Middleton, Catherine
    Abstract: This article explores the impact of public policy, technological change, and the development of Internet connectivity in EU members. The analysis illustrates that the results of previous empirical literature on the interplay between regulation, competition, and investment depend on the construction of indicators employed to evaluate this interaction. Furthermore, the article points out that the traditional policy model and related empirical literature treats fixed capital inputs in networks as a measure of digital infrastructure quality/outcomes. Using broadband speed measurements between 2007 and 2012, the article addresses this gap in the literature and evaluates the determinants of digital infrastructure quality in the EU. The analysis suggests the primary driver of network quality in the medium to long term is the willingness and/or ability of operators to reinvest more of their revenues in network capacity improvements. --
    Keywords: Broadband Networks,European Union,Regulation,Technological Change,Federalism
    Date: 2013
  14. By: Briglauer, Wolfgang
    Abstract: Fibre deployment of next-generation high-speed broadband networks is considered to be a decisive development for any information-based society, yet investment activities and especially the adoption of fibre-based broadband services take place only very gradually in most countries. This work employs static and dynamic model specifications and identifies the most important determinants of the adoption of fibre-based broadband services with recent panel data from the European Union member states for the years from 2004 to 2012. The results show that the more effective previous broadband access regulation is, the more negative the impact on adoption, while competitive pressure from mobile networks affects adoption in a non-linear manner. It appears that the approach of strict cost-based access regulation embedded in the EU regulatory framework is at odds with the targets outlined in the European Commission's Digital Agenda. Finally, we also find evidence for substantial network effects underlying the adoption process. --
    Keywords: Next-generation telecommunications networks,regulation,competition,adoption,network effects
    Date: 2013
  15. By: Neumann, Karl-Heinz; Vogelsang, Ingo
    Abstract: In many countries worldwide access networks are in the transition from copper to fiber access. During the transition phase copper and fiber networks are operated in parallel. All regulators facing this situation of technological change have to decide how to price unbundled access to the copper loop in this transition phase. Should they keep the usual forward looking long-run incremental cost standard charge, or should they move to some different approach? The authors propose to price copper access based on the modern equivalent asset (MEA) of fiber access. Since fiber access is superior to copper access, the cost of fiber access (as a basis for pricing copper access) should, however, be corrected by the performance delta between copper and fiber access. Instead of using quality of service (QoS) differences, the authors determine the performance delta based on the market valuation of services provided over the copper and fiber access represented by the end-user prices of services and corrected by cost differences downstream of the access provision. Under this approach an access seeker becomes indifferent (on the margin) between using the copper or the fiber access network and wholesale pricing (or regulation) becomes competitively neutral towards technology choice between copper and fiber access and does not distort the platform competition towards cable. To test its practicability numerical simulations of the approach are performed by means of a quantitative competition model. The model analysis suggests that the approach leads to unique and robust results. Its main conclusion is that the method tends to be conservative relative to the theoretical case of pure vertical product differentiation, meaning that the measured performance delta underestimates the theoretical performance delta. --
    Keywords: Copper access,Fiber to the home (FTTH),Modern equivalent asset,Long-run incremental costs (LRIC),Performance delta
    Date: 2013
  16. By: Howell, Bronwyn
    Abstract: New Zealand stands apart from its OECD counterparts as one of the few countries pursuing government investment in a nationwide fibre network. As in the past, when it stood apart with its 'light-handed' regulatory approach, New Zealand's experience can inform other jurisdictions. This paper contributes by documenting and analysing the chronological history of the key political, regulatory and industry actions taken to implement the government fibre investment policy, between 2008 and September 2013. The chronology reveals an industry currently in considerable disarray. A critical political economy and industrial organisation-based analysis proposes that the incremental and pathdependent nature of the evolution of New Zealand's industry-specific regulatory environment resulted in a set of arrangements ill-suited to oversee the transition from a copper-based to a fibrebased fixed line access infrastructure. It contends that the current disarray was an inevitable outcome of a lack of co-ordinated oversight of sector policy and governance that allowed the fibre network investment to proceed without clearly-articulated overarching and forward-looking competition and regulation policies integrating legacy regulations and investments into the fundamentally different environment created by the government's revolutionary fibre policy. The result was the fragmentation of regulatory responsibility across many parties on the basis of network technology type. Consequently, each pursued its own objectives in isolation from the others, which led to a crisis in December 2012 when a regulatory decision about copper prices threatened the viability of the fibre project. Absence of clear and co-ordinated leadership of sector strategy in response to the crisis has resulted in the government's integrity being undermined and a loss of confidence amongst private sector investors. --
    Date: 2013

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