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on Network Economics |
| By: | Charness, Gary (University of California, Santa Barbara); Feri, Francesco (University of Innsbruck); Meléndez-Jiménez, Miguel A. (University of Malaga); Sutter, Matthias (European University Institute) |
| Abstract: | In this paper, we describe a series of laboratory experiments that implement specific examples of a more general network structure and we examine equilibrium selection. Specifically, actions are either strategic substitutes or strategic complements, and participants have either complete or incomplete information about the structure of a random network. Since economic environments typically have a considerable degree of complementarity or substitutability, this framework applies to a wide variety of settings. The degree of equilibrium play is striking, in particular with incomplete information. Behavior closely resembles the theoretical equilibrium whenever this is unique; when there are multiple equilibria, general features of networks, such as connectivity, clustering, and the degree of the players, help to predict informed behavior in the lab. People appear to be strongly attracted to maximizing aggregate payoffs (social efficiency), but there are forces that moderate this attraction: 1) people seem content with (in the aggregate) capturing only the lion's share of the efficient profits in exchange for reduced exposure to loss, and 2) uncertainty about the network structure makes it considerably more difficult to coordinate on a demanding, but efficient, equilibrium that is typically implemented with complete information. |
| Keywords: | random networks, incomplete information, connectivity, clustering, strategic substitutes, strategic complements, experiment |
| JEL: | C71 C91 D03 D85 |
| Date: | 2014–04 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp8104&r=net |
| By: | Roig, Guillem |
| Abstract: | Product design and advertisement strategy have been theoretically studied as separate firms decisions. In the present paper, we look at the link between advertisement and product design and we analyze how firms' advertising decisions influence the market effect of product design. We consider a model of informative advertisement where two firms produce a bundle of complementary products which are partially compatible. A product design with more compatible components is associated with a larger intensity of advertisement. Higher compatibility reduces competition between firms, which incentivizes them to give factual information about their bundle. Like Matutes and Regibeau (1988), industry profit and total welfare is maximized with full product compatibility. However, contrary to them, we obtain that consumer surplus is not monotone with the level of product compatibility and its maximum is attained with partial compatibility. Moreover, because consumer surplus not only depends on the equilibrium prices but also on the intensity of advertisement, we find that for intermediate equilibrium levels of advertising, consumers prefer fully compatible components rather than full incompatibility. As a result, a more compatible product design benefits all the agents in the economy. |
| Keywords: | Informative advertisement; product design; partial compatibility; welfare. |
| JEL: | D21 D43 L13 L15 |
| Date: | 2014–03–26 |
| URL: | http://d.repec.org/n?u=RePEc:tse:wpaper:28044&r=net |
| By: | Alessandro Chessa (IMT Lucca Institute for Advanced Studies); Irene Crimaldi (IMT Lucca Institute for Advanced Studies); Massimo Riccaboni (IMT Lucca Institute for Advanced Studies); Luca Trapin (IMT Lucca Institute for Advanced Studies) |
| Abstract: | In this work we are interested in identifying clusters of "positional equivalent" actors, i.e. actors who play a similar role in a system. In particular, we analyze weighted bipartite networks that describes the relationships between actors on one side and features or traits on the other, together with the intensity level to which actors show their features. The main contribution of our work is twofold. First, we develop a methodological approach that takes into account the underlying multivariate dependence among groups of actors. The idea is that positions in a network could be defined on the basis of the similar intensity levels that the actors exhibit in expressing some features, instead of just considering relationships that actors hold with each others. Second, we propose a new clustering procedure that exploits the potentiality of copula functions, a mathematical instrument for the modelization of the stochastic dependence structure. Our clustering algorithm can be applied both to binary and real-valued matrices. We validate it with simulations and applications to real-world data. |
| Keywords: | Clustering, complex network, copula function, positional analysis, weighted bipartite network |
| JEL: | F1 C6 |
| Date: | 2014–04 |
| URL: | http://d.repec.org/n?u=RePEc:ial:wpaper:3/2014&r=net |
| By: | Luuk Rietveldt (Lecturer at Utrecht University); Robert Goedegebuure (Associate Professor at the Maastricht School of Management) |
| Abstract: | The role of network relationships has become topical in research on the internationalization process of firms. Research has focused on the internationalization process of firms in developed nations. This research adds to the literature by looking at the use of network relationships in Ethiopian small and medium sized enterprises (SMEs2) exporting spices, meat and shoes. Propositions are formulated from findings in the literature. Using a multiple case study of three Ethiopian firms, the influence of different networks on the foreign market entry process (FME) was researched. The focus was on the effect of network relations on the foreign market choice (FMC) and market entry mode choice (MEMC). The outcomes show that network relations play an important role in the internationalization. Contrary to expectations, the internationalization of the Ethiopian case firms depended completely on foreign firms initiating contacts and therewith the entrance into foreign markets. The foreign firms also influenced market entry mode choices of the firms under study. None of the firms did market research or had a strategic plan to enter the market, reflecting a reactive approach to internationalization. The vertical network, based on strong formal relations with the foreign product buyers, played a significant role in the foreign market and market entry mode choice. An important finding from the research is the notion that horizontal networks, especially the intermediary role played by foreign country governments and foreign and Ethiopian export organizations, had a big influence in the early stages on the contact relations between the foreign buyer and the Ethiopian exporter. |
| Keywords: | Network relations, internationalization, sme's (small and medium sized enterprises), foreign market entry, foreign market choice |
| JEL: | F23 L14 |
| Date: | 2014–04 |
| URL: | http://d.repec.org/n?u=RePEc:msm:wpaper:2014/08&r=net |
| By: | Natalia Pavlova (National Research University Higher School of Economics); Andrey Shastitko (National Research University Higher School of Economics) |
| Abstract: | The article focuses on the effects that type I errors can have on the incentives of firms to compete, collude or engage in efficiency promoting socially beneficial cooperation. Our results confirm that in the presence of type I errors the introduction of a leniency program can have ambiguous effects, including the destruction and prevention of welfare enhancing horizontal cooperation agreements. The obtained results help understand the negative impact the hostility tradition resulting in type I enforcement errors can have on social welfare when applied to the regulation of horizontal agreements. |
| Keywords: | antitrust, competition, collusion, cooperation agreements, leniency, enforcement errors |
| JEL: | D43 K21 L41 |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:hig:wpaper:58/ec/2014&r=net |