nep-net New Economics Papers
on Network Economics
Issue of 2014‒03‒30
six papers chosen by
Yi-Nung Yang
Chung Yuan Christian University

  1. Network externalities between carriers or machines:How they work in the smartphone industry By Ryoma Kitamura
  2. Estimating Platform Market Power in Two-Sided Markets with an Application to Magazine Advertising By Minjae Song
  3. How Placing Limitations on the Size of Personal Networks Changes the Structural Properties of Complex Networks By Somayeh Koohborfardhaghighi; Jorn Altmann
  4. Friendship Network in the Classroom: Parents Bias and Peer Effects By Fabio Landini; Natalia Montinari; Paolo Pin; Marco Piovesan
  5. Systemic risk in dynamical networks with stochastic failure criterion By B. Podobnik; D. Horvatic; M. Bertella; L. Feng; X. Huang; B. Li
  6. Facts and Figuring: An Experimental Investigation of Network Structure and Performance in Information and Solution Spaces By Jesse Shore; Ethan Bernstein; David Lazer

  1. By: Ryoma Kitamura (Graduate School of Economics, Kwansei Gakuin University)
    Abstract: In this paper, we consider a duopoly model where two firms sell two differentiated products and there is a network externality between either carriers or machines. We derive the equilibria of these games and illustrate the effects of a change in quality on the equilibrium quantity of each good. Furthermore, we compare fully compatible and incompatible equilibrium outcomes and discover some insights on relations between them. Such insights were not found in earlier studies that considered only the network externality between carriers.
    Keywords: Smartphone market, Multi-product firm, Duopoly, Cannibalization, Network externality
    JEL: D21 D43 L13 L15
    Date: 2014–03
  2. By: Minjae Song (University of Rochester)
    Abstract: In this paper I estimate platform markups in two-sided markets using structural models of platform demand. My models and estimation procedure are applicable to general two-sided market settings where agents on each side care about the presence of agents on the other side and platforms set two membership prices to maximize the sum of profits. Using data on TV magazines in Germany I show that the magazines typically set copy prices below marginal costs and earn profits from selling advertising pages. I also show that mergers are much less anticompetitive than in one-sided markets and could even be welfare enhancing.
    Date: 2013
  3. By: Somayeh Koohborfardhaghighi (College of Engineering, Seoul National University); Jorn Altmann (College of Engineering, Seoul National University)
    Abstract: People-to-people interactions in the real world and in virtual environments (e.g., Facebook) can be represented through complex networks. Changes of the structural properties of these complex networks are caused through a variety of dynamic processes. While accepting the fact that variability in individual patterns of behavior (i.e., establishment of random or FOAF-type potential links) in social environments might lead to an increase or decrease in the structural properties of a complex network, in this paper, we focus on another factor that may contribute to such changes, namely the size of personal networks. Any personal network comes with the cost of maintaining individual connections. Despite the fact that technology has shrunk our world, there is also a limit to how many close friends one can keep and count on. It is a relatively small number. In this paper, we develop a multi-agent based model to capture, compare, and explain the structural changes within a growing social network (e.g., expanding the social relations beyond one's social circles). We aim to show that, in addition to various dynamic processes of human interactions, limitations on the size of personal networks can also lead to changes in the structural properties of networks (i.e., the average shortest-path length). Our simulation result shows that the famous small world theory of interconnectivity holds true or even can be shrunk, if people manage to utilize all their existing connections to reach other parties. In addition to this, it can clearly be observed that the network¡¯s average path length has a significantly smaller value, if the size of personal networks is set to larger values in our network growth model. Therefore, limitations on the size of personal networks in network growth models lead to an increase in the network¡¯s average path length.
    Keywords: Small-World Network, Complex Networks, Average Shortest Path Length, Size of Personal Networks, Network Growth Model.
    JEL: C02 C6 C15 D85
    Date: 2014–01
  4. By: Fabio Landini (Department of Economics, University of Siena); Natalia Montinari (University of Lund); Paolo Pin (University of Siena); Marco Piovesan (Department of Economics, Copenhagen University)
    Abstract: We interview both parents and their children enrolled in six primary schools in the district of Treviso (Italy). We study the structural differences between the children network of friends reported by children and the one elicited asking their parents. We find that the parents’ network has a bias: parents expect peer effects on school achievement to be stronger than what they really are. Thus, parents of low-performing students report their children to be friends of high-performing students. Our numerical simulations indicate that when this bias is combined with a bias on how some children target friends, then there is a multiplier effect on the expected school achievement.
    Keywords: Social networks, primary school, friendships, parents' bias, homophily, peer effects, bonacich centrality
    JEL: D85 I21 Z13
    Date: 2014–01
  5. By: B. Podobnik; D. Horvatic; M. Bertella; L. Feng; X. Huang; B. Li
    Abstract: Complex non-linear interactions between banks and assets we model by two time-dependent Erd\H{o}s Renyi network models where each node, representing bank, can invest either to a single asset (model I) or multiple assets (model II). We use dynamical network approach to evaluate the collective financial failure---systemic risk---quantified by the fraction of active nodes. The systemic risk can be calculated over any future time period, divided on sub-periods, where within each sub-period banks may contiguously fail due to links to either (i) assets or (ii) other banks, controlled by two parameters, probability of internal failure $p$ and threshold $T_h$ (``solvency'' parameter). The systemic risk non-linearly increases with $p$ and decreases with average network degree faster when all assets are equally distributed across banks than if assets are randomly distributed. The more inactive banks each bank can endure (smaller $T_h$), the smaller the systemic risk---for some $T_h$ values in {\bf I} we report a discontinuity in systemic risk. When contiguous spreading becomes stochastic (ii) controlled by probability $p_2$---a condition for the bank to be solvent (active) is stochastic---with increasing $p_2$, the systemic risk decreases with both $p$ and $T_h$. We analyse asset allocation for the U.S. banks.
    Date: 2014–03
  6. By: Jesse Shore (Boston University - Department of Information Systems); Ethan Bernstein (Harvard Business School, Organizational Behavior Unit); David Lazer (Harvard University - Harvard Kennedy School (HKS))
    Abstract: Using data from a novel laboratory experiment on complex problem solving in which we varied the network structure of 16-person organizations, we investigate how an organization's network structure shapes performance in problem-solving tasks. Problem solving, we argue, involves both search for information and search for solutions. Our results show that the effect of network structure is opposite for these two important and complementary forms of search. Dense clustering encourages members of a network to generate more diverse information, but discourages them from generating diverse theories: in the language of March (1991), clustering promotes exploration in information space, but decreases exploration in solution space. Previous research, generally focusing on only one of those two spaces at a time, has produced inconsistent conclusions about the value of network clustering. By adopting an experimental platform on which information was measured separately from solutions, we were able to reconcile past contradictions and clarify the effects of network clustering on problem-solving performance. The finding both provides a sharper tool for structuring organizations for knowledge work and reveals the challenges inherent in manipulating network structure to enhance performance, as the communication structure that helps one antecedent of successful problem solving may harm the other.
    Keywords: networks, experiments, clustering, problem solving, exploration and exploitation, knowledge, information, communication, search
    Date: 2014–03

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