nep-net New Economics Papers
on Network Economics
Issue of 2014‒10‒22
eight papers chosen by
Yi-Nung Yang
Chung Yuan Christian University

  1. Merger control on two-sided markets: is there need for an efficinecy defense? By Edmond Baranes; Thomas Cortade; Andreea Cosnita-Langlais
  2. Patent Licensing Networks By Doh-Shin Jeon; Yassine Lefouili
  3. Network Formation and Systemic Risk By Selman Erol; Rakesh Vohra
  4. Propagation of Systemic Risk in Interbank Networks By Vanessa Hoffmann de Quadros; Juan Carlos Gonz\'alez-Avella; Jos\'e Roberto Iglesias
  5. Endogenous Network Production Functions with Selectivity By William C. Horrace; Xiaodong Liu; Eleonora Patacchini
  6. Business, Brokers and Borders: The Structure of West African Trade Networks By Olivier Walther
  7. Sudden Trust Collapse in Networked Societies By Jo\~ao da Gama Batista; Jean-Philippe Bouchaud; Damien Challet
  8. Wikipedia: the value of open content production By Aleksi Aaltonen; Stephan Seiler

  1. By: Edmond Baranes (LAMETA-CNRS and Labex Entreprendre, Faculté d'Economie, Université de Montpellier, Rue Raymond Dugrand, CS 79606, 34960 Montpellier Cedex 2, France); Thomas Cortade (BETA-CNRS, Université de Lorraine, Ile du Saulcy, BP 80794, 57012 Metz cedex 1, France); Andreea Cosnita-Langlais (EconomiX-CNRS, Université Paris Ouest Nanterre La Défense, 200 Avenue de la République, 92001 Nanterre cedex, France)
    Abstract: We study horizontal mergers on two-sided markets between horizontally differentiated platforms. We provide a theoretical analysis of the merger's price effect based on the amount of cost savings it generates, the behavior of outsider platforms, and the size of cross-group network effects. We point out differences as compared with the standard, one-sided merger analysis, and also discuss the merger control policy implications.
    Keywords: horizontal merger; two-sided markets; cost savings; merger control
    JEL: L41 D82 K21
    Date: 2014–09
  2. By: Doh-Shin Jeon (Toulouse School of Economics and CEPR); Yassine Lefouili (Toulouse School of Economics)
    Abstract: This paper investigates the patent licensing networks formed by competing firms. Assuming that licensing agreements can involve the payment of fixed fees only and that firms compete à la Cournot, we show that the complete network is always bilaterally efficient and that the monopoly network is bilaterally efficient if the patents are complementary enough. In the case of independent patents, we fully characterize the bilaterally efficient networks and find that when the cost reduction resulting from getting access to a competitor's technology is large enough, the complete network is the only bilaterally efficient one. We also show that the bilaterally efficient networks can be sustained as subgame-perfect Nash equilibria with symmetric payoffs. This implies that the Pareto-dominance criterion selects the network that maximizes industry profits when more than one bilaterally efficient network exists.
    Keywords: Licensing; Networks; Antitrust and Intellectual Property
    JEL: L12 L13 L41
    Date: 2014–09
  3. By: Selman Erol (Department of Economics, University of Pennsylvania); Rakesh Vohra (Department of Economics and Department of Electrical & Systems Engineering, University of Pennsylvania)
    Abstract: This paper introduces a model of endogenous network formation and systemic risk. In it, agents form networks that efficiently trade-off the possibility of systemic risk with the benefits of trade. Second, fundamentally ‘safer’ economies generate higher interconnectedness, which in turn leads to higher systemic risk. Third, the structure of the network formed depends on whether the shocks to the system are believed to be correlated or independent of each other. In particular, when shocks are perfectly correlated, the network formed is a complete graph, i.e., a link between every pair of agents. This underlines the importance of specifying the shock structure before investigating a given network because a given network and shock structure could be incompatible.
    Keywords: Network Formation, Systemic Risk, Contagion, Rationalizability, Core
    JEL: D85 G01
    Date: 2014–08–24
  4. By: Vanessa Hoffmann de Quadros; Juan Carlos Gonz\'alez-Avella; Jos\'e Roberto Iglesias
    Abstract: This work explores the characteristics of financial contagion in networks whose links distributions approaches a power law, using a model that defines banks balance sheets from information of network connectivity. By varying the parameters for the creation of the network, several interbank networks are built, in which the concentrations of debts and credits are obtained from links distributions during the creation networks process. Three main types of interbank network are analyzed for their resilience to contagion: i) concentration of debts is greater than concentration of credits, ii) concentration of credits is greater than concentration of debts and iii) concentrations of debts and credits are similar. We also tested the effect of a variation in connectivity in conjunction with variation in concentration of links. The results suggest that more connected networks with high concentration of credits (featuring nodes that are large creditors of the system) present greater resilience to contagion when compared with the others networks analyzed. Evaluating some topological indices of systemic risk suggested by the literature we have verified the ability of these indices to explain the impact on the system caused by the failure of a node. There is a clear positive correlation between the topological indices and the magnitude of losses in the case of networks with high concentration of debts. This correlation is smaller for more resilient networks.
    Date: 2014–10
  5. By: William C. Horrace (Syracuse University); Xiaodong Liu (University of Colorado at Boulder); Eleonora Patacchini (Cornell University, EIEF and CEPR)
    Abstract: We consider a production function model that transforms worker inputs into outputs through peer effect networks. The distinguishing features of this production model are that the network is formal and observable through worker scheduling, and selection into the network is done by a manager. We discuss identification and suggest a variety of estimation techniques. In particular, we tackle endogenity issues arising from selection into groups and exposure to common group factors by employing a polychotomous Heckman-type selection correction. We illustrate our method using data from the Syracuse University Menís Basketball team, where at any point in time the coach selects a lineup and the players interact strategically to win games.
    Date: 2014
  6. By: Olivier Walther (Department of Border Region Studies, University of Southern Denmark)
    Abstract: Using social network analysis, this paper studies the structure of trade networks that developed across West African borders. The first part aims to understand the centralization of cross-border trade networks. In a business environment where transaction costs are extremely high, we find that decentralized networks are well adapted to the various uncertainties induced by long-distance trade. We also study the trade-offs faced by traders between embeddedness and brokerage and find that long-distance trade relies both on the trust and cooperation shared among local traders, and on the distant ties developed with foreign partners from a different origin, religion or culture. In the second part, we study the spatial structure of trade networks and the influence of national borders on the development of social ties. The paper shows that the spatial form of trade networks is constrained by the historical origin of the traders engaged in cross-border activities. In those markets where trade is recent and where most of the traders are not native of the region, national borders are likely to exert a greater influence than in those regions where trade has pre-colonial roots.
    Keywords: Social networks, trade, border markets, brokerage, West Africa
    JEL: D85 F14 L14 P25
    Date: 2014–05
  7. By: Jo\~ao da Gama Batista; Jean-Philippe Bouchaud; Damien Challet
    Abstract: Trust is a collective, self-fulfilling phenomenon that suggests analogies with phase transitions. We introduce a stylized model for the build-up and collapse of trust in networks, which generically displays a first order transition. The basic assumption of our model is that whereas trust begets trust, panic also begets panic, in the sense that a small decrease in trust may be amplified and ultimately lead to a sudden and catastrophic drop of trust. We show, using both numerical simulations and mean-field analytic arguments, that there are extended regions of the parameter space where two equilibrium states coexist: a well-connected network where confidence is high, and a poorly connected network where confidence is low. In these coexistence regions, spontaneous jumps from the well-connected state to the poorly connected state can occur, corresponding to a sudden collapse of trust that is not caused by any major external catastrophe. In large systems, spontaneous crises are replaced by history dependence: whether the system is found in one state or in the other essentially depends on initial conditions. Finally, we document a new phase, in which agents are connected yet distrustful.
    Date: 2014–09
  8. By: Aleksi Aaltonen; Stephan Seiler
    Abstract: Without the 'spillover effects' of open content production, the growth in Wikipedia editing activity between 2002 and 2010 would have been halved. That is the central finding of research by Aleksi Aaltonen and Stephan Seiler, which analyses editing data by Wikipedia users to show how content creation by individuals encourages others to contribute to the collective process of knowledge production. Many organisations are developing open source platforms to create, store and share knowledge. This study shows how a larger mass of potential contributors to an online platform will generate bigger spillovers. Providing incentives for early users to contribute content will trigger further contributions.
    Keywords: Wikipedia, open source, user-generated content, knowledge spillover, cumulative knowledge
    JEL: D24 L23 L86 M11 O31
    Date: 2014–10

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