nep-net New Economics Papers
on Network Economics
Issue of 2014‒05‒24
thirteen papers chosen by
Yi-Nung Yang
Chung Yuan Christian University

  1. Bertrand Competition under Network Externalities By Masaki Aoyagi
  2. Strategic delegation in two-sided markets By Vitor Miguel Ribeiro
  3. Inter-Firm Price Coordination in a Two-Sided Market. By Kind, Hans Jarle; Nilssen, Tore; Sørgard, Lars
  4. Nesting Vertical and Horizontal Differentiation in Two-Sided Markets By Vitor Miguel Ribeiro; João Correia-da-Silva; Joana Resende
  5. Hub-based Network Analysis and Change in the US Air Transport System (ATS) By Huber, Hans
  6. Macroprudential Consolidation Policy in Interbank Networks By Edoardo Gaffeo; Massimo Molinari
  7. The Influence of Social Networks on Food Choices in College Food Courts By Wang, Dan; Grebitus, Carola; Schroeter, Christiane
  8. Social Networks and Restaurant Choice By Richards, Timothy J.; Tiwari, Ashutosh
  9. Friendship Network in the Classroom: Parent Bias and Peer Effects By Landini, Fabio; Montinari, Natalia; Pin, Paolo; Piovesan, Marco
  10. Input Diffusion and the Evolution of Production Networks By Vasco Carvalho; Nico Voigtländer
  11. Dynamic farsighted networks with endogenous opportunities of link formation By James Lake
  12. Do Social Networks Improve the Effectiveness of Incentive-Based Health Programs By Schroeter, Christiane; Richards, Tim; Hamilton, Steve
  13. Influences of Social Networks on Food Choices: A Comparison of Local, Regional, and National Perspectives By Liang, Chyi-Lyi (Kathleen); Pescatore, Matthew

  1. By: Masaki Aoyagi
    Abstract: Two sellers engage in price competition to attract buyers located on a network. The value of the good of either seller to any buyer depends on the number of neighbors on the network who consume the same good. For a generic specification of consumption externalities, we show that an equilibrium price equals the marginal cost if and only if the buyer network is complete or cyclic. When the externalities are approximately linear in the size of consumption, we identify the classes of networks in which one of the sellers monopolizes the market, or the two sellers segment the market.
    Date: 2013–09
  2. By: Vitor Miguel Ribeiro (Vitor Miguel Ribeiro - FEP and CEF.UP - Vitor)
    Abstract: In a two-sided market duopoly, we investigate the effects of delegating long run restrictive and unrestrictive decisions to managers by the platforms' owners, the effects of the platforms' ownership establishing long run decisions without managers and the impacts of asymmetric regimes between platforms in terms of profitability, consumer surplus and total welfare. The fact that our analysis is focused on platforms introduces inter-group externalities. We find that for sufficiently low intensity of the inter-group externality, the owners of symmetric platforms should take the long run decisions by themselves. However, for an intermediate level of the inter-group externality, the owners of symmetric platforms should delegate the long run decision to their managers. Finally, for sufficiently high level of the inter-group externality, only tipping equilibria occur. Under an asymmetric environment, that is, one platform owner establishes long run decisions and the other owner delegate's long run decisions to their manager the long run decisions should be taken by the platform's owners.
    Keywords: Two-sided markets, tipping, spatial competition, strategic delegation, managerial incentives.
    JEL: D43 L11 L13 R12
    Date: 2014–05
  3. By: Kind, Hans Jarle (Dept. of Economics, Norwegian School of Economics and Business Administration); Nilssen, Tore (University of Oslo); Sørgard, Lars (Dept. of Economics, Norwegian School of Economics and Business Administration)
    Abstract: In many two-sided markets we observe that there is a common distributor on one side of the market. One example is the TV industry, where TV channels choose advertising prices to maximize own profi…t and typically delegate determination of viewer prices to independent distributors. We show that in such a market structure the stronger the competition between the TV channels, the greater will joint profits in the TV industry be. We also show that joint pro…ts might be higher if the wholesale contract between each TV channel and the distributor consists of a simple fixed fee rather than a two-part tariff.
    Keywords: Vertical relations; advertising; media economics.
    JEL: L11 L82 M31 M37
    Date: 2014–05–22
  4. By: Vitor Miguel Ribeiro (CEF.UP and Faculdade de Economia do Porto); João Correia-da-Silva (CEF.UP and Faculdade de Economia do Porto); Joana Resende (CEF.UP and Faculdade de Economia do Porto)
    Abstract: We develop a model that is a synthesis of the two-sided markets duopoly model of Armstrong (2006) with the nested vertical and horizontal dierentiation model of Gabszewicz and Wauthy (2012), which consists of a linear city with dierent consumer densities on the left and on the right side of the city. In equilibrium, the high-quality platform sells at a higher price and captures a greater market share than the low-quality platform, despite the indifferent consumer being closer to the high-quality platform. The difference between market shares is lower than socially optimal, because of the inter-group externality and because the high-quality platform sells at a higher price. We conclude that a perturbation that introduces a negligible dierence between the consumer density on the left and on the right side of the city may disrupt the existence of equilibrium in the model of Armstrong (2006). Finally, we show that inter-group externalities make it easier to deter an inferior-quality entrant and make it easier for a superior-quality entrant to conquer the market.
    Keywords: Two-sided markets, Horizontal differentiation, Vertical differentiation
    JEL: D42 D43 L13
    Date: 2014–05
  5. By: Huber, Hans
    Abstract: The US has been a pioneer w.r.t. the modern hub-and-spoke (HS) system which found near unequivocal support among aviation scholars over the last few decades. The author takes a more critical approach with regards to the central role that hub airports play within the ATS, particularly when assessing operational decisions that in effect may lead to highly skewed traffic distributions and increasing spatial concentration of air traffic. The behavior of airlines to organize traffic around central airports can be evaluated more meaningfully by differentiating for their constituent route-structures and comparing these ensembles for the largest airports in the entire system. A new understanding of behavior and evolution of the ATS as an aggregate of hub-driven networks can be obtained and alternative HS structures be compared. Our understanding of the scope of feasible hub strategies may expand beyond conventional strategies of ‘consolidation’ versus ‘de-hubbing’ and their impact on the overall ATS may plausibly be shown.
  6. By: Edoardo Gaffeo; Massimo Molinari
    Abstract: Can consolidation policy be made consistent with macro-prudential supervision? In this study, we seek to provide new insights on this key-question using a network approach. We study how the resilience of a banking network evolves as we shock an initially homogenous competitive market with a sequence of M&A activities that significantly alter the topology of the network. We study how different M&A treatments impact on the structural vulnerabilities that can propagate through the system and we show that the severity of contagion and default dynamics depends on the chosen treatment. The desirability of alternative competitive settings (such as hub-centered market or a more concentrated and yet symmetric market) are assessed against an homogenous benchmark case and we show that the choice depends crucially on the size of the interbank market and the level of bank capitalization. The existence of a large highly connected hub is beneficial in a capitalized network with a well-developed interbank market but it can significantly weaken the system resilience in a poorly capitalized market. Antitrust and competition authorities shall adopt a state-contingent approach to M&A activities according to the market conditions in which banks operate.
    Keywords: Consolidation Policy, Macroprudential Regulation, Interbank Networks
    Date: 2014
  7. By: Wang, Dan; Grebitus, Carola; Schroeter, Christiane
    Abstract: Obesity is still on the rise, leading to high costs for the obese individual itself but also for society. We analyze the influence of peer effects on food choices in lunchrooms with posted nutrition facts. Data were collected in a lunchroom at a large U.S. university. Groups of four patrons each were interviewed for a total of 112 observations. Among others, results for calories consumed from pizza and pasta show that individuals who are dining in groups with at least one obese group member are taking in more calories. Looking at nutrition facts when ordering the food decreases calorie intake. The results suggest that dining with obese peers increases the probability of obesity while calorie labeling decreases the probability. In terms of nutrition signposting this is a promising result. However, only 15% of the sample had used the nutrition facts to make all their food choice, which leads to the conclusion that overall attention to nutrition labeling needs to be increased.
    Keywords: buffet, calorie labeling, menu labeling, obesity, peers, students, Consumer/Household Economics, Health Economics and Policy, Institutional and Behavioral Economics,
    Date: 2014
  8. By: Richards, Timothy J.; Tiwari, Ashutosh
    Keywords: Consumer/Household Economics, Health Economics and Policy,
    Date: 2014–04–04
  9. By: Landini, Fabio (Bocconi University); Montinari, Natalia (Department of Economics, Lund University); Pin, Paolo (Università di Siena); Piovesan, Marco (Department of Economics, University of Copenhagen)
    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: 2014–05–18
  10. By: Vasco Carvalho; Nico Voigtländer
    Abstract: What determines which inputs are initially considered and eventually adopted in the production of new or improved goods? Why are some inputs much more prominent than others? We model the evolution of input linkages as a process where new producers first search for potentially useful inputs and then decide which ones to adopt. A new product initially draws a set of ‘essential suppliers’. The search stage is then confined to the network neighborhood of the latter, i.e., to the inputs used by the essential suppliers. The adoption decision is driven by a tradeoff between the benefits accruing from input variety and the costs of input adoption. This has important implications for the number of forward linkages that a product (input variety) develops over time. Input diffusion is fostered by network centrality – an input that is initially represented in many network neighborhoods is subsequently more likely to be adopted. This mechanism also delivers a power law distribution of forward linkages. Our predictions continue to hold when varieties are aggregated into sectors. We can thus test them, using detailed sectoral US input-output tables. We show that initial network proximity of a sector in 1967 significantly increases the likelihood of adoption throughout the subsequent four decades. The same is true for rapid productivity growth in an input-producing sector. Our empirical results highlight two conditions for new products to become central nodes: initial network proximity to prospective adopters, and technological progress that reduces their relative price. Semiconductors met both conditions.
    Keywords: input adoption, directed network search, dynamics of input-output networks
    JEL: O33 C67 D57 L23
    Date: 2014–03
  11. By: James Lake (Southern Methodist University)
    Abstract: I present a three player dynamic network theoretic model where players are farsighted and asymmetric. Unlike the previous literature that imposes an exogenous protocol governing the order of negotiations, I allow the identity of the players who form a link in a given period to depend endogenously on player characteristics. Importantly, I show how this can give different predictions regarding attainment of the complete network relative to models with an exogenous protocol. Regardless of whether the complete network is efficient, a key dynamic trade off drives whether the complete network is attained in my model. A pair of players (insiders) may form a link with each other but, even though link formation is always myopically beneficial, each insider then refuses subsequent link formation with the third player (outsider) because the eventual attainment of the complete network makes each insider worse off relative to the insider-outsider network.
    Keywords: networks, dynamic, farsighted, efficiency
    JEL: C70 C71 C73
    Date: 2014–05
  12. By: Schroeter, Christiane; Richards, Tim; Hamilton, Steve
    Abstract: Although studies have shown that financial incentives are effective in promoting healthy behaviors, existing interventions have focused on adults in the workforce (e.g. Kullgren et al. 2013). Given that the school environment can be an effective instrument for behavior change, there is a need to examine incentive-based health programs in late-adolescent age groups. Largescale observational studies with about 9,000 freshmen at California Polytechnic State University (Cal Poly) show that every year of college was associated with a 3% BMI increase, especially among minority populations. Reversing or slowing this dynamic has proven difficult because students entering university are newly independent, not experienced in making their own lifedecisions, and encounter many distractions (Nazmi et. al. 2012). On the other hand, university students are uniquely social and social networks have been shown to be effective in leading to behavioral change. Indeed, emerging evidence on peer networks suggests that health behaviors and outcomes are shared, transferred, and influenced through social ties (Christakis and Fowler, 2007; Cohen-Cohen-Cole and Fletcher, 2008). However, few interventions have been designed to capitalize on the behavioral pathways of social networks. The primary purpose of our intervention study is to determine whether financial incentives, mediated by social network effects, are effective in achieving improved diet quality outcomes as measured by the Healthy Eating Index-2010 (HEI). We will conduct a 3.5-month parallel-design, randomized controlled trial with a racially and ethnically diverse sample of participants who consume food in campus cafeterias. Our findings will provide a unique contribution by testing the efficiency of interventions in structural transmission networks. Given the ubiquitous and increasing existence of social networks, our applications are readily transferrable at relatively low cost to other largescale student populations in elementary, middle, and high schools.
    Keywords: Food Consumption/Nutrition/Food Safety, Health Economics and Policy,
    Date: 2014
  13. By: Liang, Chyi-Lyi (Kathleen); Pescatore, Matthew
    Abstract: There has been a growing interest in the U.S. to study local and regional food systems with respect to economic, social, and enterprise development. This paper discusses a series of on-going projects funded by the USDA focusing on two aspects of the relationships between social network and food choices – producers, and interactions between producers and consumers (buyers). Preliminary results showed distribution and opportunities for agricultural producers to exploit and implement new strategies that would enhance marketing and management by taking advantage of the capacity of social/economic networks in/around communities. Long-term goal on completion these studies will compare and contrast local, regional, and national approaches to design and implement effective marketing and management strategies that aim to promote local/regional food networks from social, economic, and ecological perspectives.
    Keywords: Food Consumption/Nutrition/Food Safety, Marketing,
    Date: 2014–05

This nep-net issue is ©2014 by Yi-Nung Yang. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.