nep-net New Economics Papers
on Network Economics
Issue of 2015‒03‒05
ten papers chosen by
Yi-Nung Yang
Chung Yuan Christian University

  1. Endogenous unrestricted locations in markets with network effects By Ribeiro, Vitor
  2. Influence network in Chinese stock market By Ya-Chun Gao; Yong Zeng; Shi-Min Cai
  3. Net neutrality and inflation of traffic By Peitz, Martin; Schuett, Florian
  4. Networks of Military Alliances, Wars, and International Trade By Jackson, Matthew O.; Nei, Stephen
  5. Quantifying Spillovers in Open Source Content Production: Evidence from Wikipedia By Aaltonen, Aleksi; Seiler, Stephan
  6. A strategic model for network formation By Atabati, Omid; Farzad, Babak
  7. Multinational Networks, Domestic,and Foreign Firms in Europe By Bruno Merlevede; Matthijs De Zwaan; Karolien Lenaerts; Victoria Purice
  8. Leveraging the network: a stress-test framework based on DebtRank By Stefano Battiston; Marco D'Errico; Stefano Gurciullo; Guido Caldarelli
  9. Online social networks and trust By Sabatini, Fabio; Sarracino, Francesco
  10. A dynamic network model of the unsecured interbank lending market By Francisco Blasques; Falk Bräuning; Iman van Lelyveld

  1. By: Ribeiro, Vitor
    Abstract: The paper studies indirect network effects in a market composed by two incompatible intermediaries that choose price (short-term issue) in addition to location (long-term issue). The paper first shows that (i) when the network externality is sufficiently weak, only maximum differentiation prevails, (ii) the location equilibrium can be asymmetric for an intermediate level of the network externality, given that the first entrant locates at the city centre while the follower chooses an extreme (niche) positional location and (iii) tipping occurs favouring the leader in the location choice when the intensity of the network externality is sufficiently strong. Moreover, the paper concludes that the likelihood of an asymmetric location equilibrium is higher when there is no mismatch between the product space occupied by consumers and intermediaries. Finally, the author concludes that a penetration pricing strategy conducted by a third intermediary is more successful when the pre-entry condition is not the tipping equilibrium location.
    Keywords: simple network effect,unconstrained spatial competition,location leadership
    JEL: D43 L13 R12
    Date: 2015
  2. By: Ya-Chun Gao; Yong Zeng; Shi-Min Cai
    Abstract: In a stock market, the price fluctuations are interactive, that is, one listed company can influence others. In this paper, we seek to study the influence relationships among listed companies by constructing a directed network on the basis of Chinese stock market. This influence network shows distinct topological properties, particularly, a few large companies that can lead the tendency of stock market are recognized. Furthermore, by analyzing the subnetworks of listed companies distributed in several significant economic sectors, it is found that the influence relationships are totally different from one economic sector to another, of which three types of connectivity as well as hub-like listed companies are identified. In addition, the rankings of listed companies obtained from the centrality metrics of influence network are compared with that according to the assets, which gives inspiration to uncover and understand the importance of listed companies in the stock market. These empirical results are meaningful in providing these topological properties of Chinese stock market and economic sectors as well as revealing the interactively influence relationships among listed companies.
    Date: 2015–03
  3. By: Peitz, Martin; Schuett, Florian
    Abstract: Under strict net neutrality Internet service providers (ISPs) are required to carry data without any differentiation and at no cost to the content provider. We provide a simple framework with a monopoly ISP to evaluate different net neutrality rules. Content differs in its sensitivity to delay. Content providers can use congestion control techniques to reduce delay for their content, but do not take into account the effect of their decisions on the aggregate volume of traffic. As a result, strict net neutrality often leads to socially inefficient traffic in ation. We show that piece-meal departures from net neutrality, such as transmission fees or prioritization based on sensitivity to delay, do not necessarily improve efficiency. However, allowing the ISP to introduce bandwidth tiering and charge for prioritized delivery can implement the efficient allocation.
    Keywords: Net neutrality , network congestion , telecommunications , quality of service
    JEL: L12 L51 L86
    Date: 2015
  4. By: Jackson, Matthew O. (Stanford University and Santa Fe Institute); Nei, Stephen (Stanford University)
    Abstract: We investigate the role of networks of military alliances in preventing or encouraging wars between groups of countries. A country is vulnerable to attack if some allied group of countries can defeat the defending country and its (remaining) allies based on their collective military strengths. We show that there do not exist any networks which contain no vulnerable countries and that are stable against the pairwise addition of a new alliance as well as against the unilateral deletion of any existing alliance. We then show that economic benefits from international trade provide incentives to form alliances in ways that restore stability and prevent wars, both by increasing the density of alliances so that countries are less vulnerable and by removing the incentives of countries to attack their allies. In closing, we examine historical data on interstate wars and trade, noting that a dramatic (more than ten-fold) drop in the rate of interstate wars since 1950 is paralleled by the advent of nuclear weapons and an unprecedented growth in trade over the same period, matched with a similar densification and stabilization of alliances, consistent with the model.
    JEL: D74 D85 F10
    Date: 2014–05
  5. By: Aaltonen, Aleksi (Warwick University); Seiler, Stephan (Centre for Economic Performance, Stanford University)
    Abstract: Using detailed edit-level data over eight years across a large number of articles on Wikipedia, we find evidence for a positive spillover effect in editing activity. Cumulative past contributions, embodied by the current article length, lead to significantly more editing activity, while controlling for a host of factors such as popularity of the topic and platform-level growth trends. The magnitude of the externality is significant, and growth in editing activity on the average article would have been about 50% lower in its absence. The spillover operates through an increase in the number of contributing users, whereas the length of contributions remains unchanged. Edits triggered by spillovers involve only marginally more deletion and replacement of content than the average edit, suggesting that past contributions do inspire the creation of new content rather than corrections of past mistakes. Roughly 75% of the spillover is due to new rather than returning users contributing content.
    JEL: D24 L23 L86 M11 O31
    Date: 2014–06
  6. By: Atabati, Omid; Farzad, Babak
    Abstract: We study the dynamics of a game-theoretic network formation model that yields large-scale small-world networks. So far, mostly stochastic frameworks have been utilized to explain the emergence of these networks. On the other hand, it is natural to seek for game-theoretic network formation models in which links are formed due to strategic behaviors of individuals, rather than based on probabilities. Inspired by Even-Dar and Kearns' model [8], we consider a more realistic framework in which the cost of establishing each link is dynamically determined during the course of the game. Moreover, players are allowed to put transfer payments on the formation and maintenance of links. Also, they must pay a maintenance cost to sustain their direct links during the game. We show that there is a small diameter of at most 4 in the general set of equilibrium networks in our model. We achieved an economic mechanism and its dynamic process for individuals which firstly; unlike the earlier model, the outcomes of players' interactions or the equilibrium networks are guaranteed to exist. Furthermore, these networks coincide with the outcome of pairwise Nash equilibrium in network formation. Secondly; it generates large-scale networks that have a rational and strategic microfoundation and demonstrate the main characterization of small degree of separation in real-life social networks. Furthermore, we provide a network formation simulation that generates small-world networks.
    Keywords: network formation; linking game with transfer payments; pairwise stability; pairwise Nash equilibrium; small-world phenomenon
    JEL: C79 D85
    Date: 2014–11–01
  7. By: Bruno Merlevede; Matthijs De Zwaan; Karolien Lenaerts; Victoria Purice (-)
    Abstract: This paper introduces two datasets, AUGAMA, a panel of European firms for the period 1996-2011, and EUMULNET, a European Multinational Network data set. These datasets are constructed on the basis of the Amadeus database issued by Bureau Van Dijk Electronic Publishing. We document the process of building these data sets from the raw Amadeus data for 26 European countries. We show that the data sets adequately approximate the structure of the European economy across countries, regions, and industries as portrayed by data from Eurostat (Structural Business Statistics) and Cambridge Econometrics. As an illustration of possible application, we use the datasets to test a number of results from the theoretical literature regarding the productivity of multinational firms vis-a-vis domestic firms.
    Keywords: multinationals, firm performance, total factor productivity, firm-level data
    JEL: F23
    Date: 2015–02
  8. By: Stefano Battiston; Marco D'Errico; Stefano Gurciullo; Guido Caldarelli
    Abstract: We develop a novel stress-test framework to monitor systemic risk in financial systems. The modular structure of the framework allows to accommodate for a variety of shock scenarios, methods to estimate interbank exposures and mechanisms of distress propagation. The main features are as follows. First, the framework allows to estimate and disentangle not only first-round effects (i.e. shock on external assets) and second-round effects (i.e. distress induced in the interbank network), but also third-round effects induced by possible fire sales. Second, it allows to monitor at the same time the impact of shocks on individual or groups of financial institutions as well as their vulnerability to shocks on counterparties or certain asset classes. Third, it includes estimates for loss distributions, thus combining network effects with familiar risk measures such as VaR and CVaR. Fourth, in order to perform robustness analyses and cope with incomplete data, the framework features a module for the generation of sets of networks of interbank exposures that are coherent with the total lending and borrowing of each bank. As an illustration, we carry out a stress-test exercise on a dataset of listed European banks over the years 2008-2013. We find that second-round and third-round effects dominate first-round effects, therefore suggesting that most current stress-test frameworks might lead to a severe underestimation of systemic risk.
    Date: 2015–03
  9. By: Sabatini, Fabio; Sarracino, Francesco
    Abstract: We explore how participation in social networking sites (SNS) such as Facebook and Twitter affects the most economically relevant aspect of social capital, trust. We use measures of trust in strangers (or social trust), trust in neighbours and trust in the police. We address endogeneity in the use of SNS by exploiting the variation in the availability of broadband for high-speed Internet, which relates to technological characteristics of the pre-existing voice telecommunication infrastructures. We find that all the proxies of trust significantly decrease with participation in online networks. We discuss several interpretations of the results in light of the specific features of Internet-mediated social interaction.
    Keywords: Internet; broadband; online networks; social networking sites; Facebook; trust; social capital; hate speech
    JEL: D89 O33 Z1 Z13 Z19
    Date: 2015–03–01
  10. By: Francisco Blasques; Falk Bräuning; Iman van Lelyveld
    Abstract: We introduce a structural dynamic network model of the formation of lending relationships in the unsecured interbank market. Banks are subject to random liquidity shocks and can form links with potential trading partners to bilaterally Nash bargain about loan conditions. To reduce credit risk uncertainty, banks can engage in costly peer monitoring of counterparties. We estimate the structural model parameters by indirect inference using network statistics of the Dutch interbank market from 2008 to 2011. The estimated model accurately explains the high sparsity and stability of the lending network. In particular, peer monitoring and credit risk uncertainty are key factors in the formation of stable interbank lending relationships that are associated with improved credit conditions. Moreover, the estimated degree distribution of the lending network is highly skewed with a few very interconnected core banks and many peripheral banks that trade mainly with core banks. Shocks to credit risk uncertainty can lead to extended periods of low market activity, amplified by a reduction in peer monitoring. Finally, our monetary policy analysis shows that a wider interest rate corridor leads to a more active market through a direct effect on the outside options and an indirect multiplier effect by increasing banks' monitoring and search efforts.
    Keywords: Interbank liquidity; financial networks; credit risk uncertainty; peer monitoring; monetary policy; trading relationships; indirect parameter estimation
    JEL: C33 C51 E52 G01 G21
    Date: 2015–02

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