nep-net New Economics Papers
on Network Economics
Issue of 2014‒12‒03
eleven papers chosen by
Yi-Nung Yang
Chung Yuan Christian University

  1. Incentives to Innovate, Compatibility and Efficiency in Durable Goods Markets with Network Effects By Athanasopoulos, Thanos
  2. The impact of tariff diversity on broadband diffusion: An empirical analysis By Haucap, Justus; Heimeshoff, Ulrich; Lange, Mirjam R. J.
  3. Systemic risk spillovers in the European banking and sovereign network By Betz, Frank; Hautsch, Nikolaus; Peltonen, Tuomas A.; Schienle, Melanie
  4. The (Fuzzy) Digital Divide: The Effect of Broadband Internet Use on UK Firm Performance By Timothy De Stefano; Richard Kneller; Jonathan Timmis
  5. Buyer-Supplier Networks and Aggregate Volatility By Takayuki Mizuno; Wataru Souma; Tsutomu Watanabe
  6. QoE: A market perspective analysis By Martinez, Luis; Ahmed, Ashraf Awadelkarim Widaa; Segall, Zary
  7. Complexity of Payment Network By Hitoshi Hayakawa
  8. Equilibrium asset pricing in networks with mutually exciting jumps By Branger, Nicole; Konermann, Patrick; Meinerding, Christoph; Schlag, Christian
  9. Interbank lending and distress: Observables, unobservables, and network structure By Craig, Ben; Koetter, Michael; Krüger, Ulrich
  10. The T - Rex in the Room: Using Network Analysis to Get a Better Grasp of Small Arms Issues By Einar Engvig
  11. Trust and Manipulation in Social Networks By Manuel Förster; Ana Mauleon; Vincent Vannetelbosch

  1. By: Athanasopoulos, Thanos (Department of Economics, University of Warwick)
    Abstract: This paper investigates the relation between firms’R&D incentives and their compatibility decisions regarding durable, imperfectly substitutable network goods in the presence of forward looking consumers. Non drastic product innovation is sequential and both an initially dominant firm and a smaller rival are potential inventors. For sufficiently innovative future products, our first key result is that the dominant firm invests more when there is compatibility and voluntarily decides to supply interoperability information. This happens as the probability that he is the only inventor increases, allowing him to enjoy a higher expected future profit that outweighs the current lost revenue. For economies whose initial market size is considerably large, the rival also demands compatibility but this is no longer true in industries with a relatively smaller number of existing consumers. For less innovative new versions, the dominant firm rejects compatibility and there is a cutoff in network externalities below which he invests more when there is incompatibility. Regarding welfare, we find that a laissez faire Competition Law with respect to the IPR holders is socially preferable.
    Date: 2014
  2. By: Haucap, Justus; Heimeshoff, Ulrich; Lange, Mirjam R. J.
    Abstract: This paper provides an empirical analysis how tariff diversity affects broadband uptake, utilizing a new data set with 1497 fixed-line and 2158 mobile broadband tariffs from 91 countries across the globe. An instrumental variable approach is applied to estimate the demand for fixed broadband internet access, controlling for various industry and socio-economic factors. The empirical results indicate that, first, in addition to lower prices and higher income, more tariff diversity additionally increases broadband penetration. Secondly, inter-platform competition and mobile broadband prices are not found to have a significant effect on fixed-line broadband penetration. This suggests that low prices, higher incomes and the diversity of broadband offerings are more important drivers of fixed broadband adoption than competition between various technologies (cable networks, fixed-line telephone networks, mobile networks).
    Keywords: Broadband prices,Tariff diversity,Broadband demand,Broadband penetration,Broadband uptake,Price discrimination,Inter-platform competition
    JEL: L86 L96
    Date: 2014
  3. By: Betz, Frank; Hautsch, Nikolaus; Peltonen, Tuomas A.; Schienle, Melanie
    Abstract: We propose a framework for estimating network-driven time-varying systemic risk contributions that is applicable to a high-dimensional financial system. Tail risk dependencies and contributions are estimated based on a penalized two-stage fixed-effects quantile approach, which explicitly links bank interconnectedness to systemic risk contributions. The framework is applied to a system of 51 large European banks and 17 sovereigns through the period 2006 to 2013, utilizing both equity and CDS prices. We provide new evidence on how banking sector fragmentation and sovereign-bank linkages evolved over the European sovereign debt crisis and how it is reflected in network statistics and systemic risk measures. Illustrating the usefulness of the framework as a monitoring tool, we provide indication for the fragmentation of the European financial system having peaked and that recovery has started.
    Keywords: systemic risk contribution,tail dependence,network topology,sovereignbank linkages,Value-at-Risk
    JEL: G01 G18 G32 G38 C21 C51 C63
    Date: 2014
  4. By: Timothy De Stefano; Richard Kneller; Jonathan Timmis
    Abstract: This paper applies a fuzzy regression discontinuity design to study the effects of ADSL broadband internet on the performance of firms. We exploit a geographical discontinuity in the availability of ADSL broadband, firms located one side of the divide had access to broadband services that those on the other side did not. The discontinuity stems from an historical accident, whereby the telecommunications in one area of the North East of England is delivered by a separate company to the national monopoly provider. We study the discontinuity at the boundary between these two telecommunications providers, which rolled out broadband infrastructure at different times. Our analysis strongly suggests that broadband use has no statistically significant effect on the performance of firms.
    Keywords: broadband; firms; fuzzy regression discontinuity JEL Numbers: J23; J24; J31
    Date: 2014–10
  5. By: Takayuki Mizuno (National Institute of Informatics); Wataru Souma (Nihon University); Tsutomu Watanabe (The University of Tokyo)
    Abstract: In this paper, we investigate the structure and evolution of customer-supplier networks in Japan using a unique dataset that contains information on customer and supplier linkages for more than 500,000 incorporated non-financial firms for the five years from 2008 to 2012. We find, first, that the number of customer links is unequal across firms; the customer link distribution has a power-law tail with an exponent of unity (i.e., it follows Zipf’s law). We interpret this as implying that competition among firms to acquire new customers yields winners with a large number of customers, as well as losers with fewer customers. We also show that the shortest path length for any pair of firms is, on average, 4.3 links. Second, we find that link switching is relatively rare. Our estimates indicate that the survival rate per year for customer links is 92 percent and for supplier links 93 percent. Third and finally, we find that firm growth rates tend to be more highly correlated the closer two firms are to each other in a customer-supplier network (i.e., the smaller is the shortest path length for the two firms). This suggests that a non-negligible portion of fluctuations in firm growth stems from the propagation of microeconomic shocks – shocks affecting only a particular firm – through customer-supplier chains.
    Date: 2014–11
  6. By: Martinez, Luis; Ahmed, Ashraf Awadelkarim Widaa; Segall, Zary
    Abstract: With the development of mobile networks, customer needs and behaviours have changed. Mobile communications means so much more than simple voice communication; there is now mobile Internet with web surfing, videophone, streaming media, and micro blogging. The objective of network optimization has gradually shifted from enhancing network performance to improve quality of experience (QoE). Therefore, assessing and optimizing QoE is the trend for optimizing future mobile networks. Today, users want reliable access for their content, wherever they go in the network. To deliver the best possible experience to mobile broadband subscribers, operators need new ways to assess performance that will enable them to build and manage their networks in the most efficient way. The new paradigmatic eco system (user-interfacenetwork- content) requires novel and disruptive end-to-end considerations in order to enable and sustain the next generation of services and user experience. Thus, the extraordinary adoption of mobile connectivity by end users, and the need for optimized bandwidth management network resource, on the one hand, and the growing interest for good quality content delivery/consumption, is boosting the creation of new network solutions.
    Keywords: Quality of Service (QoS),Quality of Experience (QoE),mobile networks
    Date: 2014
  7. By: Hitoshi Hayakawa (The University of Tokyo)
    Abstract: A graph-theoretic framework is developed to study decentralized settlement in a general payment network. This paper argues settlement efficiency through examining how much settlement fund needs to be provided to settle all given obligations. Observing that required amount of settlement fund depends on in which order those obligations are settled, we focus on a pair of problems that derives its lower-bound and upper-bound, each formalized as a numbering problem on flow network. Our main finding is that twist nature of underlying directed graph (who obliged to whom) is a key factor to form settlement efficiency. The twist nature is captured through our original concepts; arrow-twisted, and vertex-twisted. Lower-bound of required settlement fund tends to be larger when underlying directed graph is twisted in arrow-twisted sense, while upper-bound tends to be smaller when it is twisted in vertex-twisted sense.
    Date: 2014–06
  8. By: Branger, Nicole; Konermann, Patrick; Meinerding, Christoph; Schlag, Christian
    Abstract: We analyze the implications of the structure of a network for asset prices in a general equilibrium model. Networks are represented via self- and mutually exciting jump processes, and the representative agent has Epstein-Zin preferences. Our approach provides a flexible and tractable unifying foundation for asset pricing in networks. The model endogenously generates results in accordance with, e.g., the robust-yet-fragile feature of financial networks shown in Acemoglu, Ozdaglar, and Tahbaz-Salehi (2014) and the positive centrality premium documented in Ahern (2013). We also show that models with simpler preference assumptions cannot generate all these findings simultaneously.
    Keywords: Dynamic Networks,Mutually Exciting Processes,Asset Pricing,General Equilibrium,Recursive Preferences
    JEL: G01 G12 D85
    Date: 2014
  9. By: Craig, Ben; Koetter, Michael; Krüger, Ulrich
    Abstract: We provide empirical evidence on the relevance of systemic risk through the interbank lending channel. We adapt a spatial probit model that allows for correlated error terms in the cross-sectional variation that depend on the measured network connections of the banks. The latter are in our application observed interbank exposures among German bank holding companies during 2001 and 2006. The results clearly indicate significant spillover effects between banks' probabilities of distress and the financial profiles of connected peers. Better capitalized and managed connections reduce the banks own risk. Higher network centrality reduces the probability of distress, supporting the notion that more complete networks tend to be more stable. Finally, spatial autocorrelation is significant and negative. This last result may indicate too-many-to-fail mechanics such that bank distress is less likely if many peers already experienced distress.
    Keywords: Spatial Autoregression,interbank connections,bank risk
    JEL: E31 G21
    Date: 2014
  10. By: Einar Engvig
    Abstract: The international small arms and light weapons (SALW) trade is a pervasive, lucrative, poorly regulated and poorly understood network of global business with subtle yet far - reaching consequences on the state of world affairs. While much has been written on the topic of the legal and illegal international SALW trade and its consequences, little has been done to try to understand the extremely complex and nuanced network of the trade as a whole. This report, aimed at addressing this issue, will (1) provide a literature review on SALW nonproliferation and social network analysis for context, (2) posit the case for the usefulness of social network analysis as an innovative descriptive and inferential tool in analyzing international SALW networks and nonprolifer ation efforts, (3) present a description of the data to be utilized in the study, (4) report the findings of the study, (5) provide a contextual analysis of the findings , and (6) conclude. The study finds ( a ) a group of seven significant nations beyond simply measuring for sheer bulk of export and import; ( b ) a K - Core defined subgroup network of 49 most significant global traders ; ( c ) a group of three nations significant by sheer import and export, but not in being n etworked in the K - Core subgroup; ( d ) a considerable overlap between the K - Core subgroup network and participating states of the Wassenaar Arrangement ; ( e ) a minority of 14 K - Core subgroup nations that are not participating states of the Wassenaar A rrangement . It finds that adherence to international treaties for specific international SALW regulation is correlated to an increased net value of legal SALW trade and that membership in an multilateral export control regime is correlated to a decreased n et value of legal SALW trade.
    Keywords: social network analysis, small arms and light weapons, nonproliferation, arms trade
    JEL: D85 F14 F53
    Date: 2014–11
  11. By: Manuel Förster (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Paris I - Panthéon-Sorbonne, CORE - Center of Operation Research and Econometrics [Louvain] - Université Catholique de Louvain (UCL) - Belgique); Ana Mauleon (CORE - Center of Operation Research and Econometrics [Louvain] - Université Catholique de Louvain (UCL) - Belgique, CEREC - Université Saint-Louis - Bruxelles); Vincent Vannetelbosch (CORE - Center of Operation Research and Econometrics [Louvain] - Université Catholique de Louvain (UCL) - Belgique, CEREC - Université Saint-Louis - Bruxelles)
    Abstract: We investigate the role of manipulation in a model of opinion formation where agents have opinions about some common question of interest. Agents repeatedly communicate with their neighbors in the social network, can exert some effort to manipulate the trust of others, and update their opinions taking weighted averages of neighbors' opinions. The incentives to manipulate are given by the agents' preferences. We show that manipulation can modify the trust structure and lead to a connected society, and thus, make the society reaching a consensus. Manipulation fosters opinion leadership, but the manipulated agent may even gain influence on the long-run opinions. In sufficiently homophilic societies, manipulation accelerates (slows down) convergence if it decreases (increases) homophily. Finally, we investigate the tension between information aggregation and spread of misinformation. We find that if the ability of the manipulating agent is weak and the agents underselling (overselling) their information gain (lose) overall influence, then manipulation reduces misinformation and agents converge jointly to more accurate opinions about some underlying true state.
    Keywords: Social networks; trust; manipulation; opinion leadership; consensus; wisdom of crowds
    Date: 2013–09

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