nep-net New Economics Papers
on Network Economics
Issue of 2015‒10‒17
eight papers chosen by
Yi-Nung Yang
Chung Yuan Christian University

  1. A Replicator Dynamic and Simulation Analysis of Network Externalities and Compatibility Among Standards By Heinrich, Torsten
  2. Price Competition in Product Variety Networks By Ushchev, Philip; Zenou, Yves
  3. An allocation rule for dynamic random network formation By Jean-François Caulier; Michel Grabisch; Agnieszka Rusinowska
  4. Dynamics of Technology Adoption and Critical Mass: The Case of U.S. Electric Vehicle Market By Shanjun Li; Yiyi Zhou
  5. The impact of liberalizing cost-saharing on basic models of network formation By Olaizola Ortega, María Norma; Valenciano Llovera, Federico
  6. Social network analysis using Stata By Thomas Grund
  7. The Perils of Peer Punishment: Evidence from a Common Pool Resource Experiment By de Melo Gioia; Piaggio Matías
  8. Intermediation in Networks By Siedlarek, Jan-Peter

  1. By: Heinrich, Torsten
    Abstract: In the presence of network externalities, compatibility and tying or bundling of standards may be employed as strategic tools. This has reportedly been done by, e.g., many competitors in ICT industries. It remains, however, less clear which mechanisms exactly are exploited and in what way. The present paper investigates the economic role of compatibility or incompatibility of tied standards for the dynamics of competition between standards. A replicator model operating on an aggregated level is complemented by an agent-based simulation that takes into account the network structure among users and by an empirical example from the information technology sector. A variety of effects and strategic options of vendors of the standards are studied, including the role of initial usage share distribution, controlling the inter-subsectoral compatibility, setting up new competitors, and utilizing properties of the network such as central or peripheral positioning of agents (Feld's friendship paradox). The agent-based model contrasts a complete network and a regular ring network with asymmetric network structures derived from Barabàsi and Albert's preferential attachment mechanism and triadic closure. Though this explores only a small subset of the theoretically possible effects, it may contribute to a better understanding of strategic interaction in the presence of network externalities.
    Keywords: network externalities \and platform competition \and standard tying; information and communication technology; agent-based modeling; replicator dynamics; preferential attachment networks
    JEL: C61 C63 D43 L81 L86 L96
    Date: 2015–10–12
  2. By: Ushchev, Philip; Zenou, Yves
    Abstract: We develop a product-differentiated model where the product space is a network defined as a set of varieties (nodes) linked by their degree of substituabilities (edges). In this network, we also locate consumers so that the location of each consumer (node) corresponds to her "ideal" variety. We show that there exists a unique Nash equilibrium in the price game among firms. Equilibrium prices are determined by firms' weighted Bonacich centralities and the average willingness to pay across consumers. They both hinge on the network structure of the firm-product space. We also investigate how local product differentiation and the spatial discount factor affect the equilibrium prices. We show that these effects non-trivially depend on the network structure. In particular, we find that, in a star-shaped network, the firm located in the star node does not always enjoy higher monopoly power than the peripheral firms.
    Keywords: monopolistic competition; networks; product variety; spatial competition
    JEL: D43 L11 L13
    Date: 2015–10
  3. By: Jean-François Caulier (CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS); Michel Grabisch (CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS, EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics); Agnieszka Rusinowska (CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS, EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics)
    Abstract: Most allocation rules for network games presented in the literature assume that the network structure is fixed. We put explicit emphasis on the construction of networks and examine the dynamic formation of networks whose evolution across time periods is stochastic. Time-series of networks are studied that describe processes of network formation where links may appear or disappear at any period. Moreover, convergence to an efficient network is not necessarily prescribed. Transitions from one network to another are random and ruled by a stochastic process, typically a Markov chain. We propose the link-based scenario allocation rule for such dynamic random network formation processes and provide its axiomatic characterization. By considering a monotone game and a particular (natural) network formation process we recover the link-based flexible network allocation rule of Jackson (2015).
    Keywords: dynamic networks, network game, link-based allocation rule, Markov chain, characterization
    Date: 2015
  4. By: Shanjun Li (Dyson School of Applied Economics and Management, Cornell University, Ithaca, NY 14853); Yiyi Zhou (Department of Economics, Stony Brook University, Stony Brook, NY 11794)
    Abstract: We examine the dynamics of technology adoption and critical mass in network industries with an application to the U.S. electric vehicle (EVs) market. This market exhibits indirect network effects in that consumer EV adoption and investor deployment of public charging stations are interdependent. In markets with positive indirect network effects, multiple equilibria with different level of technology adoption may exist. The diffuion and ultimately the success of technology depend on the equilibrium structure and property. Under certain market conditions, the issue of critical mass arises and the market needs to pass this critical mass in order to reach the high-adoption equilibrium. Using a data set of quarterly EV sales in 354 U.S. metro areas from 2011 to 2013, we quantify indirect network effects and simulate long-run market outcomes in each of the MSAs. Our analysis provides robust and significant evidence of indirect network effects in this market. Simulations show several different market equilibrium outcomes across the 354 MSAs in the long run with a significant number of them exhibiting multiple equilibria and critical mass. Policy suggestions are provided in order to push these markets to pass the critical mass and move towards the high-adoption equilibrium.
    Keywords: electric vehicles; indirect network effects; critical mass
    JEL: Q4 Q5 R4
    Date: 2015–10
  5. By: Olaizola Ortega, María Norma; Valenciano Llovera, Federico
    Abstract: This paper studies the impact of "liberalizing " the cost-sharing of links on some basic models of network formation. This is done in a setting where both doubly supported and singly supported links are possible, and which includes the two seminal models of network formation by Jackson and Wolinsky and Bala and Goyal as extreme cases. In this setting, the notion of pairwise stability is extended and it is proved that liberalizing cost-sharing for doubly supported links widens the range of values of the parameters where the efficient networks formed by such type of links are pairwise stable, while the range of values of the parameters where the efficient networks formed by singly supported links are pairwise stable shrinks, but the region where the latter are e¢ cient and pairwise stable remains the same.
    Keywords: unilateral link-formation, bilateral link-formation, cost-sharing, efficiency, stability, network formation
    JEL: C72 D20 J00 A14
    Date: 2015–09–12
  6. By: Thomas Grund (Institute for Analytical Sociology, Linköping University, Sweden)
    Abstract: The field of social network analysis is one of the most rapidly growing fields of the social sciences. Social network analysis focuses on the relationships that exist between individuals (or other units of analysis) such as friendship, advice, trust, or trade relationships. Network analysis is concerned with the visualization and analysis of network structures, as well as with the importance of networks for individuals’ propensities to adopt different kinds of behaviors. Up until now such analyses have only been possible to perform using specialized software for network analysis. This tutorial introduces the so-called nwcommands, a software suite with over 80 Stata commands for social network analysis. The software includes commands (and dialog boxes) for importing, exporting, loading, saving, handling, manipulating, replacing, generating, visualizing, and animating networks. It also includes commands for measuring various properties of the networks and the individual nodes, for detecting network patterns and measuring the similarity of different networks, as well as advanced statistical techniques for network analysis including MR-QAP and ERGM.
    Date: 2015–09–16
  7. By: de Melo Gioia; Piaggio Matías
    Abstract: We provide experimental evidence on the effects of social disapproval by peers among communities of Uruguayan small-scale fishers exploiting a common pool resource (CPR). We combined this treatment with an in-group (groups from a single community) / mixed group (groups composed of fishers from different communities) treatment. We find that mixed groups, unlike in-groups, reduce their exploitation of the resource in response to the threat of punishment. Both in in-groups and mixed groups there is substantial antisocial punishment, which leads to increased extraction of the CPR by those who are unfairly punished. These findings indicate that effective peer punishment requires coordination to prevent antisocial targeting and to clarify the social signal conveyed by punishment.
    Keywords: Social disapproval; Social preferences; Common pool resource.
    JEL: D03 O12 C93
    Date: 2015–06
  8. By: Siedlarek, Jan-Peter (Federal Reserve Bank of Cleveland)
    Abstract: I study intermediation in networked markets using a stochastic model of multilateral bargaining in which players compete on different routes through the network. I characterize stationary equilibrium payoffs as the fixed point of a set of intuitive value function equations and study efficiency and the impact of network structure on payoffs. There is never too little trade but there may be an inefficiency through too much trade in states where delay would be efficient. With homogeneous trade surplus the payoffs for players that are not essential to a trade opportunity go to zero as trade frictions vanish.
    Keywords: bargaining; financial networks; intermediation; matching; middlemen; networks; over-the-counter markets; stochastic games
    JEL: C73 C78 L14
    Date: 2015–10–09

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