nep-net New Economics Papers
on Network Economics
Issue of 2015‒09‒26
eleven papers chosen by
Yi-Nung Yang
Chung Yuan Christian University

  1. Facebook-to-Facebook: Online Communication and Economic Cooperation By Anna Lou Abatayo; John Lynham; Katerina Sherstyuk
  2. An Analysis of Top Trading Cycles in Two-Sided Matching Markets By Yeon Koo Che; Olivier Tercieux
  3. Assignment Games with Externalities By Gudmundsson, Jens; Habis, Helga
  4. Network Externalities in Telecommunication Industry: An Analysis of Serbian Market By Dejan Trifunovic; Djordje Mitrovic; Bojan Ristic
  5. Urban Networks: Spreading the Flow of Goods, People, and Ideas By Glaeser, Edward L; Ponzetto, Giacomo AM; Zou, Yimei
  6. The Benefits of Forced Experimentation: Striking Evidence from the London Underground Network By Shaun Larcom; Ferdinand Rauch; Tim Willems
  7. The Role of Social Networks in Cultural Assimilation By Verdier, Thierry; Zenou, Yves
  8. On the emergence of scale-free production networks By Stanislao Gualdi; Antoine Mandel
  9. A network analysis of the global energy market: an insight on the entanglement between crude oil and the world economy By Franco Ruzzenenti; Francesco Picciolo; Andreas Papandreou
  10. A scale-free transportation network explains the city-size distribution By Berliant, Marcus; Watanabe, Hiroki
  11. Estimating Tipping Points in Feedback-Driven Financial Networks By Zvonko Kostanjcar; Stjepan Begusic; H. E. Stanley; Boris Podobnik

  1. By: Anna Lou Abatayo (University of Hawaii at Manoa); John Lynham (University of Hawaii at Manoa); Katerina Sherstyuk (University of Hawaii at Manoa)
    Abstract: Communication is often critical for economic cooperation and enhancement of trust. Traditionally, direct face-to-face communication has been found to be more effective than any form of indirect, mediated communication. We study whether this is still the case given that many people routinely use texting and online social media to conduct economic transactions. In out laboratory experiment, groups of participants communicate either (i) face-to-face, (ii) through the most popular online social network – Facebook, or (iii) using text messaging, before participating in a public goods or a trust game. While people talk significantly more under traditional face-to-face, discussion through Facebook and text messages prove as effective as face-to-face communication in enhancing cooperation and increasing trust. For all three media, discussions that focus on the game of use more positive emotion words are correlated with enhanced trust. It appears that young American adults are now just as adept at communicating and reducing social distance online as they are in person.
    Keywords: communication technology; laboratory experiments; public good games; trust games
    JEL: C91 C92 D03 D71
    Date: 2015–09
  2. By: Yeon Koo Che; Olivier Tercieux
    Date: 2015–09–21
  3. By: Gudmundsson, Jens; Habis, Helga
    Abstract: We examine assignment games, wherematched pairs of firms and workers create some monetary value to distribute among themselves and the agents aim to maximize their payoff. In the majority of this literature, externalities - in the sense that a pair’s value depends on the pairing of the others - have been neglected. However, inmost applications a firm’s success depends on, say, the success of its rivals and suppliers. Thus, it is natural to ask how the classical results on assignment games are affected by the introduction of externalities? The answer is – dramatically. We find that (i) a problem may have no stable outcome, (ii) stable outcomes can be inefficient (not maximize total value), (iii) efficient outcomes can be unstable, and (iv) the set of stable outcomes may not form a lattice. We show that stable outcomes always exist if agents are "pessimistic." This is a knife-edge result: there are problems in which the slightest optimism by a single pair erases all stable outcomes.
    Keywords: two-sided matching, assignment game, externalities, stability, efficiency
    JEL: C71 C78 D62
    Date: 2015–09–18
  4. By: Dejan Trifunovic (University of Belgrade, Faculty of Economics); Djordje Mitrovic (University of Belgrade, Faculty of Economics); Bojan Ristic (University of Belgrade, Faculty of Economics)
    Abstract: Telecommunication industry has probably the highest level of direct network effects. Direct externalities are related to the number of consumers using the same service, and indirect externalities stem from the availability of supporting services. Apart from network externalities, in telecommunication call externalities also exist when user of one network benefits from receiving free calls from users of other networks. Serbian mobile phone telecommunication market was first a duopoly market with majority state- owned Telecom Serbia and privately owned Telenor. After that a third license was sold to VIP mobile. The two incumbents were well established in the market and have long time ago reached the critical mass of users. At the beginning, users of VIP mobile benefited mainly from call externalities and incumbents reacted by price discriminating between on-net and off-net calls aiming to deter entry of new rival in the market. The entrant succeeded in obtaining new users mainly by offering lower prices than incumbents. The subsequent decision of regulatory agency to permit changing operator without changing user’s number levelled the playing field, reduced user’s switching costs and the extent of user’s lock-in. The purpose of the paper is to analyse the current level of network and call externalities in Serbia using data from the Serbian mobile telephone market for the period 2003–2013 (number of subscribers, providers’ market shares and mobile call prices per minute). We show that the number of subscribers that changed their operator increased with the growing size of the new comer’s network installed base. Also, we have found that implicit price discrimination between on-net and off-net calls could be identified both in pre-paid and post-paid packages. In the former case, all operators offer cheap additional packages with large number of minutes for on-net calls. In the latter case, post-paid users can use additional large number of free minutes for on-net calls after they spent all the minutes available for calls to all networks from their existing subscription packages.
    Keywords: Network externalities, Call externalities, Price discrimination
    JEL: L14 L96
  5. By: Glaeser, Edward L; Ponzetto, Giacomo AM; Zou, Yimei
    Abstract: Should China build mega-cities or a network of linked middle-sized metropolises? Can Europe's mid-sized cities compete with global agglomeration by forging stronger inter-urban links? This paper examines these questions within a model of recombinant growth and endogenous local amenities. Three primary factors determine the trade-off between networks and big cities: local returns to scale in innovation, the elasticity of housing supply, and the importance of local amenities. Even if there are global increasing returns, the returns to local scale in innovation may be decreasing, and that makes networks more appealing than mega-cities. Inelastic housing supply makes it harder to supply more space in dense confines, which perhaps explains why networks are more popular in regulated Europe than in the American Sunbelt. Larger cities can dominate networks because of amenities, as long as the benefits of scale overwhelm the downsides of density. In our framework, the skilled are more likely to prefer mega-cities than the less skilled, and the long-run benefits of either mega-cities or networks may be quite different from the short-run benefits.
    Keywords: cities; growth; migration; networks
    JEL: F15 O18 R10 R58
    Date: 2015–09
  6. By: Shaun Larcom; Ferdinand Rauch; Tim Willems
    Abstract: We estimate that a significant fraction of commuters on the London underground do not travel their optimal route. Consequently, a tube strike (which forced many commuters to experiment with new routes) taught commuters about the existence of superior journeys, bringing about lasting changes in behaviour. This effect is stronger for commuters who live in areas where the tube map is more distorted, thereby pointing towards the importance of informational imperfections. We argue that the information produced by the strike improved network-efficiency. Search costs are unlikely to explain the suboptimal behaviour. Instead, individuals seem to under-experiment in normal times, as a result of which constraints can be welfare-improving.
    Keywords: Experimentation, learning, optimization, rationality, search
    JEL: D83 L91 R41
    Date: 2015–09
  7. By: Verdier, Thierry (Paris School of Economics); Zenou, Yves (Stockholm University)
    Abstract: We develop a model where, in the first stage, minority individuals have to decide whether or not they want to assimilate to the majority culture while, in the second stage, all individuals (both from the majority and the minority group) embedded in a network have to decide how much effort they exert in some activity (say education). We show that the more central minority agents are in the social network, the more they assimilate to the majority culture. We also show that denser networks tend to favor assimilation so that, for example, it is easier to assimilate in a complete network than in a star-shaped network. Finally, we show that the subgame-perfect equilibrium is not optimal because there is not enough activity and assimilation. We then endogeneize the network and show under which condition a complete or a star network is an equilibrium with assimilation.
    Keywords: assimilation, majority individuals, ethnic minorities, network centrality, network formation
    JEL: D85 J15 Z13
    Date: 2015–09
  8. By: Stanislao Gualdi; Antoine Mandel
    Abstract: Building upon the standard model of monopolistic competition on the market for intermediary goods, we propose a simple dynamical model of the formation of production networks. The model subsumes the standard general equilibrium approach and robustly reproduces key stylized facts of firms' demographics. Firms' growth rates are negatively correlated with size and follow a core double-exponential distribution followed by fat tails. Firms' size and production network are power-law distributed. These properties emerge because continuous inflow of new firms shifts away the model from a steady state to a disequilibrium regime in which firms get scaled according to their resistance to competitive forces.
    Date: 2015–09
  9. By: Franco Ruzzenenti; Francesco Picciolo; Andreas Papandreou
    Abstract: One major hurdle in the road toward a low carbon economy is the present entanglement of developed economies with oil. This tight relationship is mirrored in the correlation between most of economic indicators with oil price. This paper addresses the role of oil compared to the other three main energy commodities -coal, gas and electricity, in shaping the international trading network (ITW or WTW, world trade web) in the light of network theory. It initially surveys briefly the literature on the correlation between oil prices with economic growth and compares the concepts of time correlation with the concept of spatial correlation brought about by network theory. It outlines the conceptual framework underpinning the network measures adopted in the analysis and results are presented. Three measures are taken into account: the ratio of mutual exchanges in the network (reciprocity); the role of distances in determining trades (spatial filling); and the spatial correlation of energy commodities with the whole trade network and with four trading categories: food, capital goods, intermediate goods and consumption goods. The analysis deliver five main results:1) the the energy commodities network was structurally stable amid dramatic growth during the decade considered; 2) that oil is the most correlated energy commodity to the world trade web; 3) that oil is the most pervasive network, though coal is the less affected by distances; 4) that oil has a remarkably high level of internal reciprocity and external overlapping 5) that the reciprocity of the trade network is negative correlated in time with the price of oil.
    Date: 2015–09
  10. By: Berliant, Marcus; Watanabe, Hiroki
    Abstract: Zipf’s law is one of the best-known empirical regularities in urban economics. There is extensive research on the subject, where each city is treated symmetrically in terms of the cost of transactions with other cities. Recent developments in network theory facilitate the examination of an asymmetric transport network. In a scale-free network, the chance of observing extremes in network connections becomes higher than the Gaussian distribution predicts and therefore it explains the emergence of large clusters. The city-size distribution shares the same pattern. This paper decodes how accessibility of a city to other cities on the transportation network can boost its local economy and explains the city-size distribution as a result of its underlying transportation network structure. Finally, we discuss the endogenous evolution of transport networks.
    Keywords: Zipf’s law; city-size distribution; scale-free network
    JEL: L14 R12 R40
    Date: 2015–09–19
  11. By: Zvonko Kostanjcar; Stjepan Begusic; H. E. Stanley; Boris Podobnik
    Abstract: Much research has been conducted arguing that tipping points at which complex systems experience phase transitions are difficult to identify. To test the existence of tipping points in financial markets, based on the alternating offer strategic model we propose a network of bargaining agents who mutually either cooperate or where the feedback mechanism between trading and price dynamics is driven by an external "hidden" variable R that quantifies the degree of market overpricing. Due to the feedback mechanism, R fluctuates and oscillates over time, and thus periods when the market is underpriced and overpriced occur repeatedly. As the market becomes overpriced, bubbles are created that ultimately burst in a market crash. The probability that the index will drop in the next year exhibits a strong hysteresis behavior from which we calculate the tipping point. The probability distribution function of R has a bimodal shape characteristic of small systems near the tipping point. By examining the S&P500 index we illustrate the applicability of the model and demonstate that the financial data exhibits a hysteresis and a tipping point that agree with the model predictions. We report a cointegration between the returns of the S&P 500 index and its intrinsic value.
    Date: 2015–09

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