nep-net New Economics Papers
on Network Economics
Issue of 2014‒02‒08
nine papers chosen by
Yi-Nung Yang
Chung Yuan Christian University

  1. Endogenous product compatibility choice under Cournot competition with a network externality By Tsuyoshi Toshimitsu
  2. Boundedly Rational Opinion Dynamics in Directed Social Networks: Theory and Experimental Evidence By Pietro Battiston; Luca Stanca
  3. 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
  4. Elimination of systemic risk in financial networks by means of a systemic risk transaction tax By Sebastian Poledna; Stefan Thurner
  5. The Value of Connections: Evidence from the Italian-American Mafia By Mastrobuoni, Giovanni
  6. Managing Consumer Referrals in a Chain Network By Maria Arbatskaya; Hideo Konishi
  7. "Graduated Response Policy and the Behavior of Digital Pirates: Evidence from the French Three-Strike (Hadopi) Law" By MICHAEL ARNOLD; ERIC DARMON; SYLVAIN DEJEAN; THIERRY PENARD
  8. Information and consumer fraud in a signalling model By Silvia Martínez-Gorricho
  9. An experimental study of sorting in group contests By Philip Brookins; John Lightle; Dmitry Ryvkin

  1. By: Tsuyoshi Toshimitsu (School of Economics, Kwansei Gakuin University)
    Abstract: We provide a simple model of endogenous product compatibility choice under Cournot competition with a network externality. Using the model, we consider how the degree of a network externality and product substitutability affects the choice regarding product compatibility. In particular, if the degree of the network externality is larger than that of the product substitutability, there exist multiple equilibria, involving imperfect, partial, and perfect compatibility. However, if another assumption formula regarding a spillover effect, which is a component of network size, is made, i.e., the converter case, there is a unique equilibrium, i.e., perfect compatibility, irrespective of the degree of the network effect versus product substitutability. Furthermore, we show that a perfectly compatible product standard is socially optimal and analyze, therefore, whether a social dilemma arises in the network products market.
    Keywords: product compatibility, network externality, fulfilled expectation; Cournot duopoly, horizontally differentiated product
    JEL: D21 D43 D62 L15
    Date: 2014–01
  2. By: Pietro Battiston; Luca Stanca
    Abstract: This paper investigates opinion dynamics and social influence in directed communication networks. We study the properties of a generalized boundedly rational model of opinion formation in which individuals aggregate the information they receive by using weights that are a function of their neighbors' indegree. We then present an experiment designed to test the predictions of the model. We find that both Bayesian updating and boundedly rational updating à la DeMarzo et al. (2003) are rejected by the data. Consistent with our theoretical predictions, the social influence of an agent is positively and significantly affected by the number of individuals she listens to. When forming their opinions, agents do take into account the structure of the communication network, although in a sub-optimal way.
    Keywords: Social Networks, Learning, Social In uence, Bounded Rationality
    JEL: D85 D83 A14 L14 Z13
    Date: 2014–01
  3. 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; Internet-mediated communication; social capital; broadband; digital divide
    JEL: C36 D85 O33 Z1
    Date: 2014–01–31
  4. By: Sebastian Poledna; Stefan Thurner
    Abstract: Financial markets are exposed to systemic risk (SR), the risk that a major fraction of the system ceases to function and collapses. Since recently it is possible to quantify SR in terms of underlying financial networks where nodes represent financial institutions, and links capture the size and maturity of assets (loans), liabilities, and other obligations such as derivatives. In particular it is possible to quantify the share of SR that individual nodes contribute to the overall SR in the financial system. We extend the notion of node-specific SR to individual liabilities in a financial network (liability-specific SR). We use historical, empirical data of interbank liabilities to show that a few liabilities in a nation-wide interbank network contribute to the major fraction of the overall SR. We propose a tax on individual transactions that is proportional to their contribution to overall SR. If a transaction does not increase SR it is tax free. We use a macroeconomic agent based model (CRISIS macro-financial model) with a financial economy to demonstrate that the proposed Systemic Risk Tax (SRT) leads to a self-organized re-structuring of financial networks, that are practically free of SR. This is because risk-increasing transactions will be systematically avoided when a SRT is in place. Systemic stability under a SRT emerges due to a de facto elimination of system-wide cascading failure. ABM predictions agree remarkably well with the empirical data and can be used to understand the relation of credit risk and systemic risk.
    Date: 2014–01
  5. By: Mastrobuoni, Giovanni (University of Essex)
    Abstract: Using declassified Federal Bureau of Narcotics records on 800 US Mafia members active in the 1950s and 1960s, and on their connections within the organized crime network, I estimate network effects on gangsters' economic status. Lacking information on criminal proceeds, I measure economic status exploiting detailed information about their place of residence. Housing values are reconstructed using current deflated transactions recorded on I deal with the potential reverse causality between the economic status and the gangster's position in the network exploiting exogenous exposure to potential pre-immigration connections. In the absence of pre-immigration data I use the informational content of surnames, called isonomy, to measure the place of origin. The instrument is valid as long as conditional on the characteristics of the gangsters (including the region of birth and a rich set of controls about the gangsters' legal and illegal activities) such exposure influences the gangsters' importance in- side the network (called centrality) but not the preference for specific housing needs. A standard deviation increase in closeness centrality increases economic status by between one forth (OLS) and one standard deviation (2SLS).
    Keywords: mafia, networks, centrality, housing prices, value of connections, crime, surnames, isonomy
    JEL: A14 C21 D23 D85 K42 Z13
    Date: 2014–01
  6. By: Maria Arbatskaya (Emory University); Hideo Konishi (Boston College)
    Abstract: We consider the optimal pricing and referral strategy of a monopoly that uses a simple consumer communication network (a chain) to spread product information. The first-best policy with fully discriminatory position-based referral fees involves standard monopoly pricing and referral fees that provide consumers with strictly positive referral incentives. Effective price discrimination among consumers based on their positions in the chain occurs in both the first-best solution and the second-best solution (with a common referral fee).
    Keywords: communication network, consumer referral policy, referral fee, price discrimination
    JEL: D4 D8 L1
    Date: 2014–01–10
  7. By: MICHAEL ARNOLD (Department of Economics,University of Delaware); ERIC DARMON (CREM, University of Rennes); SYLVAIN DEJEAN (CREM, LR-MOS, University of La Rochelle); THIERRY PENARD (CREM, University of Rennes 1 & University of Delaware)
    Abstract: Most developed countries have tried to restrain digital piracy by strength- ening laws against copyright infringement. In 2009, France implemented the Hadopi law. Under this law individuals receive a warning the first two times they are detected illegally sharing content through peer to peer (P2P) networks. Legal action is only taken when a third violation is detected. We analyze the impact of this law on individual behavior. Our theoretical model of illegal be- havior under a graduated response law predicts that the perceived probability of detection has no impact on the decision to initially engage in digital piracy, but may reduce the intensity of illegal file sharing by those who do pirate. We test the theory using survey data from French Internet users. Our econometric results indicate that the law has no substantial deterrent effect. In addition, we find evidence that individuals who are better informed about the law and piracy alternatives substitute away from monitored P2P networks and illegally access content through unmonitored channels.
    Keywords: Digital Piracy, digital media, Hadopi, three-strikes law, property rights
    JEL: L82 O34 K42 D11
    Date: 2014
  8. By: Silvia Martínez-Gorricho (Dpto. Análisis Económico Aplicado)
    Abstract: This article considers a two-sided private information model. We assume that two exogenously given qualities are offered in a monopolistic market. Prices are ¿xed. A low quality seller chooses to be either honest (by charging the lower market price) or dishonest (by charging the higher price). We discuss the signaling role of the consumer’s private information on the equilibrium level of dishonesty, incidence of fraud and trade. We demonstrate that the equilibrium incidence of fraud is nonmonotonic in the buyer’s private information when the prior belief favors the low-quality seller strongly enough. This result holds as long as information is noisy and regardless of its private or public nature. Welfare consequences are ambiguous.
    Keywords: Consumer Fraud; Asymmetric Information; Price Signalling
    JEL: D42 D82 G14 L15 L51
    Date: 2014–01
  9. By: Philip Brookins (Department of Economics, Florida State University); John Lightle (Department of Economics, Florida State University); Dmitry Ryvkin (Department of Economics, Florida State University)
    Abstract: We study experimentally the effects of sorting in contests between groups of heterogeneous players whose within-group efforts are perfect substitutes. The theory predicts that higher aggregate effort will be reached when variation in ability between groups is lower, i.e., by a more balanced sorting. In the experiment, we assign subjects to four types -- A, B, C, and D -- ranked by their cost of effort, with A having the lowest and D having the highest cost, and conduct contests between two groups of two players each. In the Balanced treatment, (A,D) groups (i.e., groups comprised of a type A and a type D player) compete with (B,C) groups, whereas in the Unbalanced treatment, (A,B) groups compete with (C,D) groups. We find substantial heterogeneity and overinvestment of efforts by all types in both treatments, including the "underdog" (C,D) group which surprisingly is not demoralized by the unbalanced matching. Despite strong overbidding, relative aggregate efforts are remarkably close to equilibrium predictions both between treatments and between groups within each treatment. The results confirm the prediction that balanced sorting leads to higher aggregate effort.
    Keywords: contest, group, sorting, heterogeneous players, experiment
    JEL: C72 C91 M54 D72
    Date: 2014–01

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