|
on Network Economics |
| By: | Federico Boffa (Free University of Bolzano, Faculty of Economics and Management, Piazzetta dell’Università 1, I-39031 Brunico, Italy); Lapo Filistrucchi (University of Florence, Department of Economics and Management, Via delle Pandette 9, I - 50127 Firenze, Italy) |
| Abstract: | We study optimal cartel prices in a two-sided market. We present a simple model showing that prices above the two-sided monopoly price may prevail on one side of a two-sided market as a means to enhance the sustainability of the cartel. We prove that in such a case a higher benefit from the network effect may compensate customers on that side of the market for the higher prices they are charged. We then provide both sufficient and necessary conditions for these results to hold in more complex models of two-sided markets. Our analysis extends to cartels in two-sided markets a result previously known for cartels selling complementary products, despite the fact that products in a two-sided market are not complements for customers, since customers typically buy only one of the two products (e.g. in the case of newspapers, advertisers buy advertising slots while readers buy content) and products on each side are substitutes (e.g. newspapers publishers compete for readers and for advertisers). |
| Keywords: | two-sided markets, indirect network effects, collusion, cartel, platform, TV, newspapers, media |
| JEL: | L12 L41 L81 L82 L86 |
| Date: | 2014–10 |
| URL: | http://d.repec.org/n?u=RePEc:net:wpaper:14-19&r=net |
| By: | Anand, Kartik (Bank of Canada); Craig, Ben R. (Federal Reserve Bank of Cleveland); von Peter, Goetz (Bank for International Settlements) |
| Abstract: | The network pattern of financial linkages is important in many areas of banking and finance. Yet bilateral linkages are often unobserved, and maximum entropy serves as the leading method for estimating counterparty exposures. This paper proposes an efficient alternative that combines information-theoretic arguments with economic incentives to produce more realistic interbank networks that preserve important characteristics of the original interbank market. The method loads the most probable links with the largest exposures consistent with the total lending and borrowing of each bank, yielding networks with minimum density. When used in a stress-testing context, the minimum-density solution overestimates contagion, whereas maximum entropy underestimates it. Using the two benchmarks side by side defines a useful range that bounds the cost of contagion in the true interbank network when counterparty exposures are unknown. |
| Keywords: | Interbank markets; networks; entropy; intermediation; systemic risk |
| JEL: | C63 D85 G21 L14 |
| Date: | 2014–10–02 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedcwp:1416&r=net |
| By: | Sergio Currarini; Elena Fumagalli,; Fabrizio Panebianco |
| Abstract: | We study linear quadratic games played on a network where strategies are complements between neighbors and substitutes between agents at distance-two. We provide micro-founded problems where this pattern of interaction is due to a local congestion effect. Equilibrium behavior systematically differs from a model of peer effects only. First, the ranking of equilibrium actions may not follow that of network centralities, with large behavior prevailing at the periphery of the network. Second, network density affects aggregate behavior in a non-monotonic way. Third, segregating agents according to their preferences has a non-monotonic effect on the polarization of behavior. We relate these patterns to evidence from smoking networks, industrial districts and ethnically fragmented societies. We conclude by discussing the implications for the identification of peer effects. |
| Keywords: | Games on Networks, Peer Effects, Key-player, Centrality, Congestion. |
| JEL: | C7 D85 I1 H23 |
| Date: | 2014–10 |
| URL: | http://d.repec.org/n?u=RePEc:lec:leecon:14/13&r=net |
| By: | Jean-François Caulier (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Paris I - Panthéon-Sorbonne); A. Mauleon (CORE - Center of Operation Research and Econometrics [Louvain] - Université Catholique de Louvain (UCL) - Belgique); Vincent Vannetelbosch (CORE - Center of Operation Research and Econometrics [Louvain] - Université Catholique de Louvain (UCL) - Belgique) |
| Abstract: | We develop a theoretical framework that allows us to study which bilateral links and coalition structures are going to emerge at equilibrium. We define the notion of coalitional network to represent a network and a coalition structure, where the network speciÖes the nature of the relationship each individual has with his coalition members and with individuals outside his coalition. To predict the coalitional networks that are going to emerge at equilibrium we propose the concept of contractual stability which requires that any change made to the coalitional network needs the consent of both the deviating players and their original coalition partners. We show that there always exists a contractually stable coalitional network under the simple majority decision rule and the component-wise egalitarian or majoritarian allocation rules. Moreover, requiring the consent of group members may help to reconcile stability and e¢ ciency. |
| Keywords: | Networks ; Coalition Structures ; Contractual Stability ; Allocation Rules Networks ; Strong efficiency |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:hal-00633611&r=net |
| By: | Andre Veiga (Nuffield College, Oxford University, 1 New Road, Oxford OX1 1NF, United Kingdom); |
| Abstract: | Abstract I model dynamic product design along price and non-price dimensions by a firm in a market with positive network externalities between consumers. In the case of a usage fee, I provide conditions under which the steady state (SS) is unique and show that the introductory price is negative and therefore below the positive SS price. Moreover, SS price increases with the size of demand frictions and is therefore higher than in a static model. A welfare maximizer's SS price is lower than a profit-maximizer's, and it is negative if demand frictions are low enough. If a platform chooses product scope (in the sense of Johnson and Myatt (2006)), it is optimal to begin as a niche platform and to broaden scope as market share increases. When the platform can target different groups of consumers with different prices, it caters to those consumers whose price-elasticity of demand is large relative to their valuation for network externalities. Finally, we show how the model can be extended to the case where consumers have multidimensional types and make heterogeneous contributions to the network's value. |
| Keywords: | Production, Pricing, and Market Structure; Networks; Network Formation and Analysis; Existence and Stability Conditions of Equilibrium; Dynamic Analysis; Firm Behavior: Theory; Monopoly |
| JEL: | L11 L14 D85 C62 C61 D21 D42 |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:net:wpaper:1415&r=net |
| By: | Annalisa Caloffi; Federica Rossi; Margherita Russo |
| Abstract: | Greater understanding of what factors promote the formation of innovation networks and their successful performance would help policymakers improve the design of policy interventions aimed at funding R&D projects to be carried out by networks of innovators. In this paper, we focus on the organizations that can play the role of intermediaries in the networks, facilitating the involvement of other participants and promoting communication and knowledge flows within the network. Based on an original empirical dataset, capturing the relationships between organizations involved in a set of publicly-funded programmes in support of innovation networks, we have tried to identify what are the main features of different types of intermediaries based on an analysis of their positions within networks of relationships. We have observed that agents that occupy broker positions – linking agents that are not connected to each other – are more likely to be found in technologically turbulent environments, while the agents that occupy intercohesive positions – bridging cohesive communities of network agents – operate in more stable contexts. Intermediaries in general are more likely to be local governments. However, besides this, it is not possible to clearly identify organizations that, by nature, are more likely to be either brokers or intercohesive agents: different innovation networks may require different organizations to mediate relationships between the other participants. |
| Keywords: | Innovation policy, innovation networks, social network analysis, intermediaries, brokers, intercohesion |
| JEL: | D85 O31 O32 O38 |
| Date: | 2014–02 |
| URL: | http://d.repec.org/n?u=RePEc:mod:dembwp:0030&r=net |
| By: | Fabio Sabatini; Francesco Sarracino |
| Abstract: | Does Facebook make people lonely and unhappy? Empirical studies have produced conflicting results about the effect of social networking sites (SNS) use on individual welfare. We use a representative sample of the Italian population to investigate how actual and virtual networks of social relationships influence subjective well-being (SWB). We find a significantly negative correlation between online networking and self-reported happiness. We address endogeneity in online networking by exploiting technological characteristics of the pre-existing voice telecommunication infrastructures that exogenously determined the availability of broadband for high-speed Internet. We try to further disentangle the direct effect of SNS use on well-being from the indirect effect possibly caused by the impact of SNS’s on trust and sociability in a SEM analysis. We find that online networking plays a positive role in SWB through its impact on physical interactions. On the other hand, SNS use is associated with lower social trust, which is in turn positively correlated with SWB. The overall effect of networking on individual welfare is significantly negative. |
| Keywords: | Social participation; online networks; Facebook; social trust; social capital; subjective well-being; hate speech; broadband; digital divide. |
| JEL: | C36 D85 O33 Z13 |
| Date: | 2014–10–11 |
| URL: | http://d.repec.org/n?u=RePEc:eei:rpaper:eeri_rp_2014_11&r=net |
| By: | Jordi Brandts (Institutd'AnalisiEconomica(CSIC); Barcelona GSE); Ayça Ebru Giritligil (Murat Sertel Center for Advanced Economic Studies; İstanbul Bilgi University); Roberto A. Weber (Department of Economics, University of Zurich) |
| Abstract: | In many areas of social life individuals receive information about a particular issue of interest from multiple sources. When these sources are connected through a network then proper aggregation of this information by an individual involves taking into account the structure of this network. The inability to aggregate properly may lead to various types of distortions. In our experiment a number of agents all want to find out the value of a particular parameter unknown to all. Agents receive private signals about the parameter and agents can communicate their estimates of the parameter repeatedly through a network, the structure of which is known by all players. We present results from experiments with four different networks. We find that the information of agents who have more outgoing links in a network gets more weight in the information aggregation of the other agents than it optimally should. Our results are consistent with the model of “persuasion bias” of De Marzo et al. (2003) and at odds with an alternative heuristic according to which the most influential agents are those with more incoming links. |
| Date: | 2014–10 |
| URL: | http://d.repec.org/n?u=RePEc:beb:wpbels:201403&r=net |
| By: | Craig, Ben R. (Federal Reserve Bank of Cleveland); Fecht, Falko (Frankfurt School of Finance and Management); Tumer-Alkan, Gunseli (VU University Amsterdam) |
| Abstract: | In this paper, we focus on the interconnectedness of banks and the price they pay for liquidity. We assess how the concentration of credit relationships and the position of a bank in the network topology of the system influence the bank’s ability to meet its liquidity demand. We use quarterly data of bilateral interbank credit exposures between all German banks from 2000 to 2008 to measure interbank relationships and the network characteristics. We match these data with the bids placed by the individual banks in the European Central Bank’s (ECB) weekly repo auctions. The bids measure each bank’s willingness to pay for liquidity since they had variable rate tenders with a “pay-your-bid” price. Controlling for bank characteristics and the daily fulfillment of reserve requirements, we find that banks with a more diversified borrowing structure in the interbank market bid significantly less aggressively and pay a lower price for liquidity in the ECB’s main refinancing operations. These findings suggest that incentives to diversify bank liquidity risk dominate the benefits of private information. When the network position of the bank is taken into account, we find that central lenders in the money market bid more aggressively in the auctions. |
| Keywords: | Interbank markets; liquidity; relationship lending; networks |
| JEL: | D44 D85 E58 G21 L14 |
| Date: | 2014–10–17 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedcwp:1421&r=net |
| By: | Jérôme Vicente |
| Abstract: | Cluster policies have been recently called into question in the aftermath of several empirical evidences. Disentangling how market and network failures arguments play together in cluster policy design, we look for more robust micro foundations of network structuring in clusters. Our aim is to show that, in spite of this growing skepticism, new opportunities for cluster policy exist. They require moving their focus from the “connecting people” one best way that gets through the whole of cluster policy guidelines, to more surgical incentives for R&D collaborations, which favor suited structural properties of local knowledge networks along the life cycle of clusters. |
| Keywords: | cluster policy, knowledge spillover, network failures |
| JEL: | B52 D85 O33 R12 |
| Date: | 2014–10 |
| URL: | http://d.repec.org/n?u=RePEc:egu:wpaper:1420&r=net |
| By: | Dhillon, Amrita (King's College London); Peeters, Ronald (Maastricht University); Yuksel, Ayse Muge (Maastricht University) |
| Abstract: | The use of social networks in the workplace has been documented by many authors, although the reasons for their widespread prevalence are less well known. In this paper we present evidence based on a combined eld-laboratory experiment that social networks are used by employers to reduce worker moral hazard. The worker chooses an eort level given a xed wage under dierent settings of social proximity. Social proximity is captured using actual Facebook friendship information revealed anonymously to subjects once they have been recruited. Since employers themselves do not have access to social connections, they delegate the decision to referrers who can select among workers with dierent degrees of social proximity to themselves. We show that employers choose referrals over anonymous hiring about 80% of the time. In keeping with our predictions, referrers also choose workers with a greater social proximity to themselves and workers who are closer to referrers indeed pay back more to the referrer. The advantage of the lab setting is that we can isolate moral hazard and directed altruism as the main driving forces for these results. |
| Keywords: | Eciency wage contracts, Moral hazard, Dictator game, Referrals, Altruism, Reciprocity, Directed altruism, Social proximity, Facebook, Experiment, Social networks, Strength of ties, Spot market. |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:cge:wacage:206&r=net |
| By: | Vlad Radoias (Department of Economics, Towson University) |
| Abstract: | I develop a theoretical model of price discrimination under social influence. I find that social influence gives sellers the incentive to artificially create and maintain excess demand on the market. The rationing occurs mainly at the low end of the market, and sometimes results in full rationing of the low end. Furthermore, the incidence of price discrimination under social influence is much lower than in the absence of it. Social influence lowers the profitability of price discrimination and incentivizes sellers to reduce product variety and to only target the high end of the market, a fact that is consistent with many empirical observations. |
| Keywords: | Price Discrimination, Social Influence, Excess Demand. |
| JEL: | D4 L15 M31 |
| Date: | 2014–10 |
| URL: | http://d.repec.org/n?u=RePEc:tow:wpaper:2014-08&r=net |