nep-net New Economics Papers
on Network Economics
Issue of 2015‒01‒09
nine papers chosen by
Yi-Nung Yang
Chung Yuan Christian University

  1. Areeda-Turner in Two-Sided Markets By Behringer, S.; Filistrucchi, L.
  2. The fallacies of regulatory market splits: Network neutrality regulation ante portas By Knieps, Günter; Stocker, Volker
  3. Stability in informal insurances: an approach by networks and overlapping coalitions By Messan Agbaglah
  4. Network evolution, success, and regional development in the European aerospace industry By Guffarth, Daniel; Barber, Michael J.
  5. Dealer Networks By Li, Dan; Schurhoff, Norman
  6. Director Networks and Takeovers By Renneboog, L.D.R.; Zhao, Y.
  7. Key Players By Zenou, Yves
  8. Do Interconnections Matter for Bank Efficiency? By Solange Maria Guerra; Benjamin Miranda Tabak; Rodrigo Cesar de Cesar de Castro Miranda
  9. Financial Stability and Interacting Networks of Financial Institutions and Market Infrastructures By Léon, C.; Berndsen, R.J.; Renneboog, L.D.R.

  1. By: Behringer, S.; Filistrucchi, L. (Tilburg University, Center For Economic Research)
    Abstract: Areeda and Turner (1975) were the first to argue that a price below marginal costs should be considered a sign of predation. Recognizing that marginal cost data were typically unavailable, the authors concluded that a price below average variable cost should be presumed unlawful. This socalled Areeda-Turner Rule has become the standard to assess claims of predation. We first show that in two-sided markets price cost margins on the two-sides of the market are interrelated and that a monopolist, even in the absence of actual or potential competition, may find it optimal to charge a price below marginal cost on one side of the market. As a result, showing that the price is below average variable cost on one side of the market cannot be considered a sign of predation in such markets. This is in contrast to a recent decision of the Commercial Court of Paris that sanctioned Google for giving away for free its online mapping services. We thus extend the Areeda-Turner rule to two-sided markets. We argue that one should apply the rule by taking into account revenues and costs from both sides of the market. As applications, we analyse three alleged cases of predatory behaviour in the market for daily newspapers. Our examples highlight that applying a one-sided Areeda-Turner rule may lead to assess a perfectly legitimate profit maximizing pricing policy as a predatory attempt.
    Keywords: predation; market definition; two-sided markets; network effects; daily newspapers
    JEL: L12 L41 L82
    Date: 2014
  2. By: Knieps, Günter; Stocker, Volker
    Abstract: Network neutrality regulations for the Internet have been discussed for about a decade. In Europe, recent efforts have produced a proposal by the European Commission for a network neutrality regulation. Envisaged is the introduction of a two-tiered Internet traffic regulation based on a regulatory market split between the markets for 'public' Internet traffic services and markets for specialized services giving higher and ensured quality of data transmission. We argue that regulatory market splits are artificial and the proposed regulation of markets for Internet traffic services constitutes a regulatory fallacy.
    Date: 2014
  3. By: Messan Agbaglah (Département d'économique, Université de Sherbrooke)
    Abstract: Based on empirical facts, we build a model of informal insurance institutions and study their stability. In our setting, risk sharing groups are overlapping homogenous coalitions, originating from networks of historical trust relationships. We derive a general folk theorem that works in an environment of uncertainty and we identify the determinants of stability which are robust to social norms. Our results provide theoretical explanations for empirical findings, including the puzzle that rich families in rural economies in developing countries consume less. Our approach bridges the two traditional approaches of clubs and bilateral agreements.
    Keywords: Informal insurance, networks, overlapping coalitions, stability
    JEL: O17 Z13 D85 D71
    Date: 2014–10
  4. By: Guffarth, Daniel; Barber, Michael J.
    Abstract: The success breeds success hypothesis has been mainly applied to theoretical network approaches. We investigate the European aerospace industry using data on the European Framework Programmes and on Airbus suppliers, focusing on the success breeds success hypothesis at four levels of analysis: the spatial structure of the European aerospace R&D collaboration network, its topological architecture, the individual actors that make up the network, and through a comparison of the Airbus invention and production networks. On the spatial level, SBS is favored: successful regions maintain their position and grow on a large scale, especially so for regions that have strongly participated from the very beginning. The regional hub structure is mirrored in the architecture of the European aerospace R&D collaboration network, where well-connected hub organizations play a key role in shaping the structure of the network through their many collaborative partnerships and do so in a way that strategically positions themselves with greater ability to access and regulate knowledge flows, as assessed by several centrality measures. Only successful organizations have the ability to form so many ties, with success thus breeding success in the European aerospace R&D collaboration network. The importance of the core organizations made clear through the centrality analysis is further supported by the analysis of weak ties, where we observe that the core organizations are connected to the rest of the network with many weak ties, thereby confirming their outstanding positions in the European aerospace R&D collaboration network as being able to access knowledge or other resources. With the combination of the R&D collaboration network and the Airbus production network on a spatial level, we see additional support for SBS, as those regions whose actors are frequent participants in both networks show the greatest share of successful actors. The European aerospace industry shows an ambidextrous character as a whole, which is nonetheless insufficient to avoid recent and future challenges demanding a strong emphasis on production skills.
    Keywords: R&D collaboration network,success breeds success,aerospace industry,European Framework Programmes
    JEL: D85 L14 L93 O38 R11 R12 Z18
    Date: 2014
  5. By: Li, Dan (Board of Governors of the Federal Reserve System (U.S.)); Schurhoff, Norman (Swiss Finance Institute)
    Abstract: Dealers in over-the-counter securities form networks to mitigate search frictions. The audit trail for municipal bonds shows the dealer network has a core-periphery structure. Central dealers are more efficient at matching buyers and sellers than peripheral dealers, which shortens intermediation chains and speeds up trading. Investors face a tradeoff between execution speed and cost. Central dealers provide immediacy by pre-arranging fewer trades and holding larger inventory. However, trading costs increase strongly with dealer centrality. Investors with strong liquidity need trade with central dealers and at times of market-wide illiquidity. Central dealers thus serve as liquidity providers of last resort.
    Keywords: Municipal bonds; over-the-counter financial market; network analysis; trading cost; liquidity; immediacy; transparency
    JEL: G12 G14 G24
    Date: 2014–11–10
  6. By: Renneboog, L.D.R. (Tilburg University, Center For Economic Research); Zhao, Y. (Tilburg University, Center For Economic Research)
    Abstract: Abstract: We study the impact of corporate networks on the takeover process. We find that better connected companies are more active bidders. When a bidder and a target have one or more directors in common, the probability that the takeover transaction will be successfully completed augments, and the duration of the negotiations is shorter. Connected targets more frequently accept offers that involve equity. Directors of the target firm (who are not interlocked) have a better chance to be invited to the board of the combined firm in connected M&As. While connections have a clear impact on the takeover strategy and process, we do not find evidence that the market acknowledges connections between bidders and targets as the announcement returns are not statistically different from those bidders and targets which are ex ante not connected.
    Keywords: Mergers and Acquisitions; Director Networks; Centrality; Connections
    JEL: D85 G14 G34
    Date: 2013
  7. By: Zenou, Yves
    Abstract: In this chapter, we provide an overview on the literature on key players in networks. We first introduce the theoretical concept of the key player, which is the agent that should be targeted by the planner so that, once removed, she will generate the highest level of reduction in total activity. We also consider another notion of key player where the planner is targeting a set of network nodes that are optimally positioned to quickly diffuse information, attitudes, behaviors or goods. We then examine the empirical tests of the key-player policies for criminal networks, education, R&D networks, financial networks and diffusion of microfinance. We show that implementing such a policy outperforms other standard policies such as targeting the most active agents in a network.
    Keywords: crime policies; diffusion; Katz-Bonacich centrality; Key players
    JEL: A14 D85 K42 Z13
    Date: 2014–12
  8. By: Solange Maria Guerra; Benjamin Miranda Tabak; Rodrigo Cesar de Cesar de Castro Miranda
    Abstract: This paper addresses the issue of how individual bank interconnectivity and the interbank network topology impact on Brazilian banking efficiency between 2007 and 2013. We use several network measures to analyze the effects of bank interconnections on cost, profit and risk-taking efficiency. The results suggest that interconnections matter for bank efficiency. We find that interconnectivity can increase cost and risk-taking inefficiency levels. We also find that the density of the network topology can reduce profit and risk-taking inefficiency levels
    Date: 2014–12
  9. By: Léon, C.; Berndsen, R.J. (Tilburg University, TILEC); Renneboog, L.D.R. (Tilburg University, TILEC)
    Abstract: An interacting network coupling financial institutions’ multiplex (i.e. multi-layer) and financial market infrastructures’ single-layer networks gives an accurate picture of a financial system’s true connective architecture. We examine and compare the main properties of Colombian multiplex and interacting financial networks. Coupling financial institutions’ multiplex networks with financial market infrastructures’ networks removes modularity, which enhances financial instability because the network then fails to isolate feedbacks and limit cascades while it retains its robust-yet-fragile features. Moreover, our analysis highlights the relevance of infrastructure-related systemic risk, corresponding to the effects caused by the improper functioning of FMIs or by FMIs acting as conduits for contagion.
    Keywords: multiplex networks; interacting networks; financial stability; contagion; financial market infrastructures
    JEL: D85 D53 G20 L14
    Date: 2014

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