nep-net New Economics Papers
on Network Economics
Issue of 2014‒06‒02
thirteen papers chosen by
Yi-Nung Yang
Chung Yuan Christian University

  1. Net Neutrality with Competing Internet Platforms By Bourreau, Marc; Kourandi, Frago; Valletti, Tommaso
  2. A theory of trade in a global production network By Bosker, Maarten; Westbrock, Bastian
  3. Pricing Internet Traffic: Exclusion, Signalling and Screening By Jullien, Bruno; Sand-Zantman, Wilfried
  4. Transmission and Generation Investment in Electricity Markets: The Effects of Market Splitting and Network Fee Regimes By Grimm, Veronika; Martin, Alexander; Weibelzahl, Martin; Zöttl, Gregor
  5. Key Players in Co-Offending Networks By Lindquist, Matthew; Zenou, Yves
  6. Gas network and market diversity in the US, the EU and Australia: A story of network access rights By Jean-Michel Glachant; Michelle Hallack; Miguel Vazquez
  7. Viral Altruism? Generosity and Social Contagion in Online Networks By Lacetera, Nicola; Macis, Mario; Mele, Angelo
  8. Diversification of Geographic Risk in Retail Bank Networks: Evidence from Bank Expansion after the Riegle-Neal Act By Aguirregabiria, Victor; Clark, Robert; Wang, Hui
  9. Heterogeneous Peer Effects in Education By Patacchini, Eleonora; Rainone, Edoardo; Zenou, Yves
  10. R&D Networks: Theory, Empirics and Policy Implications By König, Michael; Liu, Xiaodong; Zenou, Yves
  11. Impact of Supply Chain Network Structure on FDI: Theory and evidence By ITOH Ryo; NAKAJIMA Kentaro
  12. Going beyond Duopoly: Connectivity Breakdowns under Receiving Party Pays By Steffen Hoernig
  13. Weak Versus Strong Net Neutrality By Joshua S. Gans

  1. By: Bourreau, Marc; Kourandi, Frago; Valletti, Tommaso
    Abstract: We propose a two-sided model with two competing Internet platforms, and a continuum of Content Providers (CPs). We study the effect of a net neutrality regulation on capacity investments in the market for Internet access, and on innovation in the market for content. Under the alternative discriminatory regime, platforms charge a priority fee to those CPs which are willing to deliver their content on a fast lane. We find that under discrimination investments in broadband capacity and content innovation are both higher than under net neutrality. Total welfare increases, though the discriminatory regime is not always beneficial to the platforms as it can intensify competition for subscribers. As platforms have a unilateral incentive to switch to the discriminatory regime, a prisoner's dilemma can arise. We also consider the possibility of sabotage, and show that it can only emerge, with adverse welfare effects, under discrimination.
    Keywords: Innovation; Investment; Net neutrality; Platform competition; Two-sided markets
    JEL: L13 L51 L52 L96
    Date: 2014–02
  2. By: Bosker, Maarten; Westbrock, Bastian
    Abstract: This paper develops a novel theory of trade in a global supply chain. We expand on a monopolistic competition trade model. Countries produce both intermediate and final goods that are sold domestically or, incurring country-pair specific trade costs, internationally. This links countries in a multi-stage production network. In the unique general equilibrium of the model, goods prices and wages in each country depend on the entire structure of trade connections. Drawing on methods from the social network literature, we then determine each country's importance in the global production network and analyse the welfare consequences of a further integration of the network. Our findings highlight the role of a few key countries that bring other nations closer together by intermediating their value added. Proximity to these key countries is crucial for other nations' income growth. An accompanying empirical analysis shows strong support in favor of the predicted network effects.
    Keywords: global supply chains; international trade; network effects
    JEL: C67 F12
    Date: 2014–03
  3. By: Jullien, Bruno; Sand-Zantman, Wilfried
    Abstract: We consider a network that intermediates traffic between free content providers and consumers. While consumers do not know the traffic cost when deciding on consumption, a content provider knows his cost but may not control the consumption. We study how pricing consumers' and content providers' sides allows both profit extraction from the network and efficient information transmission. In the case of uniform tariff, we argue that a positive price-cap on the charge to content is optimal (with no constrain on the consumer side). Proposing menus helps signaling useful information to consumers and therefore adjusting consumption to traffic cost. In the case of menus, we show that optimal mechanisms consist in letting the content producers choose between different categories associated with different prices for content and consumers. Our results are robust to competition between ISPs and to competition between contents. We also show that when (competitive) content providers choose at small cost between a pay and a free business model, a price-cap at cost on the price for content improves efficiency.
    Keywords: information; intranet; net neutrality; traffic management
    JEL: D4 L1 L86 L96
    Date: 2014–03
  4. By: Grimm, Veronika; Martin, Alexander; Weibelzahl, Martin; Zöttl, Gregor
    Abstract: In this paper we propose a three–level computational equilibrium model that allows to analyze the impact of the regulatory environment on transmission line expansion (by the regulator) and investment in generation capacity (by private firms) in liberalized electricity markets. The basic model analyzes investment decisions of the transmission operator (TO) and private firms in expectation of an energy only market and cost-based redispatch. In different specifications we consider the cases of one versus two price zones (market splitting) and analyze different approaches to recover network cost, in particular lump sum, capacity based, and energy based fees. In order to compare the outcomes of our multi–stage market model with the first best benchmark, we also solve the corresponding integrated planer problem. In two simple test networks we illustrate that energy only markets can lead to suboptimal locational decisions for generation capacity and thus, imply excessive network expansion. Market splitting heals those problems only partially. Those results obtain for both, capacity and energy based network tariffs, although investment slightly differs across those regimes.
    Keywords: Electricity markets; Network Expansion; Generation Expansion; Investment Incentives; Computational Equilibrium Models; Transmission Management
    Date: 2014–03–31
  5. By: Lindquist, Matthew; Zenou, Yves
    Abstract: We study peer effects in crime by analyzing co-offending networks. We first provide a credible estimate of peer effects in these networks equal to 0.17. This estimate implies a social multiplier of 1.2 for those individuals linked to only one co-offender and a social multiplier of 2 for those linked to three co-offenders. We then provide one of the first empirical tests of the key player policy in a real world setting. This policy defines a micro-founded strategy for removing the criminal from each network that reduces total crime by the largest amount. Using longitudinal data, we are able to compare the theoretical predictions of the key player policy with real world outcomes. By focusing on networks for which the key player has disappeared over time, we show that the theoretical predicted crime reduction is close to what is observed in the real world. We also show that the key player policy outperforms other reasonable police policies such as targeting the most active criminals or targeting criminals who have the highest betweenness or eigenvector centrality in the network. This indicates that behavioral-based policies can be more efficient in reducing crime than those based on algorithms that have no micro-foundation.
    Keywords: Crime; crime policies; key player; peer effects; social multiplier; social networks
    JEL: A14 K42 Z13
    Date: 2014–03
  6. By: Jean-Michel Glachant; Michelle Hallack; Miguel Vazquez
    Abstract: The institutional setting of open gas networks and markets is revealing considerably diverse and diverging roads taken by the US, the EU and Australia. We will show that this is explained by key choices made in the primary liberalization process. This primary liberalization is based on a definition of network access rights, which leads to different regimes for the transmission services, as well as for the gas commodity trade, as commodity trade depends on the network services to get any market deal actually implemented. Not only do those choices depend on the physical architecture of the network, but also the perceived difficulties and institutional costs of coordinating the actual transmission services through certain market arrangements.
    Keywords: Network regulation, gas market, property rights, open access, gas carriage systems
    Date: 2014–03
  7. By: Lacetera, Nicola (University of Toronto); Macis, Mario (Johns Hopkins University); Mele, Angelo (Johns Hopkins University)
    Abstract: How do the social media affect the success of charitable promotional campaigns? We use individual-level longitudinal data and experimental data from a social-media application that facilitates donations while broadcasting donors' activities to their contacts. We find that broadcasting is positively associated with donations, although some individuals appear to opportunistically broadcast a pledge, and then delete it. Furthermore, broadcasting a pledge is associated with more pledges by a user's contacts. However, results from a field experiment where broadcasting of the initial pledges was randomized suggest that the observational findings were likely due to homophily rather than genuine social contagion effects. The experiment also shows that, although our campaigns generated considerable attention in the forms of clicks and “likes,” only a small number of donations (30 out of 6.4 million users reached) were made. Finally, an online survey experiment showed that both the presence of an intermediary and a fee contributed to the low donation rate. Our findings suggest that online platforms for charitable giving may stimulate costless forms of involvement, but have a smaller impact on actual donations, and that network effects might be limited when it comes to contributing real money to charities.
    Keywords: altruism, fundraising, social media, network effects, field experiments
    JEL: D64 C93
    Date: 2014–05
  8. By: Aguirregabiria, Victor; Clark, Robert; Wang, Hui
    Abstract: The 1994 Riegle Neal (RN) Act removed interstate banking restrictions in the US. The primary motivation was to permit geographic risk diversification (GRD). Using a factor model to measure banks' geographic risk, we show that RN expanded GRD possibilities in small states, but that few banks took advantage. Using our measure of geographic risk and an empirical model of bank choice of branch network, we identify preferences towards GRD separately from the contribution of other factors that may limit the expansion of some banks after RN. Counterfactual experiments based on the estimated structural model show that risk has a significant negative effect on bank value, but this has been counterbalanced by economies of density/scale, reallocation/merging costs, and concerns for local market power.
    Keywords: Branch networks; Commercial banking; Geographic risk diversification; Liquidity risk; Oligopoly competition; Riegle Neal Act
    JEL: G21 L13 L51
    Date: 2014–02
  9. By: Patacchini, Eleonora; Rainone, Edoardo; Zenou, Yves
    Abstract: We develop a network model looking at the role of different types of peers in education. The empirical salience of the model is tested using a very detailed longitudinal dataset of adolescent friendship networks. We find that there are strong and persistent peer effects in education but peers tend to be influential only when their friendships last more than a year and not a shorter period of time. In the short run, however, both types of ties have an impact on current grades.
    Keywords: education; efficient 2SLS estimation; long-term peer effects; Social networks; spatial autoregressive model
    JEL: C31 D85 I21 Z13
    Date: 2014–02
  10. By: König, Michael; Liu, Xiaodong; Zenou, Yves
    Abstract: We study a structural model of R&D alliance networks in which firms jointly form R&D collaborations to lower their production costs while competing on the product market. We derive the Nash equilibrium of this game, provide a welfare analysis and determine the optimal R&D subsidy program that maximizes total welfare. We also identify the key firms, i.e. the firms whose exit would reduce welfare the most. We then structurally estimate our model using a panel dataset of R&D collaborations and annual company reports. We use our estimates to identify the key firms and analyze the impact of R&D subsidy programs. Moreover, we analyze temporal changes in the rankings of key firms and how these changes affect the optimal R&D policy.
    Keywords: key firms; optimal subsidies; R&D networks
    JEL: D85 L24 O33
    Date: 2014–03
  11. By: ITOH Ryo; NAKAJIMA Kentaro
    Abstract: This study investigates how the structure of a supply chain network in the domestic market influences the foreign direct investment (FDI) decisions of firms embedded in the network. We first describe the binary choice of firms on whether to invest through a coordination game of a fixed network with incomplete information of the firms' profits, and we show that the unique equilibrium of the game is represented by the Katz-Bonacich centrality measure, which captures both direct and indirect effects of the network. Then, we also conduct empirical tests to verify our theoretical hypothesis with large disaggregated data of Japanese firms and confirm that the Katz-Bonacich centrality of each firm has a significantly positive effect on its FDI even when sector-specific fixed effects and other attributes are controlled for, as our theory predicted.
    Date: 2014–05
  12. By: Steffen Hoernig
    Abstract: We show that the prediction of strategic connectivity breakdowns under a receiving-party-pays system and discrimination between on and off-net prices does not hold up once more than two mobile networks are considered. Indeed, if there are at least three competing networks and enough utility is obtained from receiving calls, only equilibria with finite call prices and receiving prices exist. Private negotiations over access charges then achieve the efficient outcome. Bill & keep (zero access charges) and free outgoing and incoming calls are efficient if and only marginal costs of calls are zero. JEL codes: L13, L51
    Keywords: Mobile network competition, Receiving party pays, Connectivity breakdown, Termination rates
    Date: 2014
  13. By: Joshua S. Gans
    Abstract: This paper provides a framework to classify and evaluate the impact of net neutrality regulations on the allocation of consumer attention and the distribution of surplus between consumers, ISPs and content providers. While the model provided largely nests other contributions in the literature, here the focus is on including direct payments from consumers to content providers. With this additional price it is demonstrated that the type of net neutrality regulation (i.e., weak versus strong net neutrality) matters for such regulations to have real effects. In addition, we provide support for the notion that strong net neutrality may stimulate content provider investment while the model concludes that there is unlikely to be any negative impact from such regulation on ISP investment. Counter to many claims, it is argued here that ISP competition may not be a substitute for net neutrality regulation in bringing about these effects
    JEL: D04 D42 D43 K2 L1 L12 L13
    Date: 2014–05

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