nep-net New Economics Papers
on Network Economics
Issue of 2015‒11‒01
seventeen papers chosen by
Yi-Nung Yang
Chung Yuan Christian University

  1. Private Contracts in Two-Sided Markets By Gaston Llanes; Francisco Ruiz-Aliseda
  2. Public Goods in Endogenous Networks By Markus Kinateder; Luca Paolo Merlino
  3. Risk taking and information aggregation in groups By Spiro Bougheas; Jeroen Nieboer; Martin Sefton
  4. Investment, Subsidies, and Universal Service: Broadband Internet in the United States By Kyle Wilson;
  5. Retail Networks and Real Estate: the case of Swiss luxury watches in China and Southeast By Thierry Theurillat; Pierre-Yves Donzé
  6. The world city network: national versus global perspective By Stefan Lüthi; Alain Thierstein; Michael Hoyler
  7. An econometric model of link formation with degree heterogeneity By Bryan S. Graham
  8. Who is at the Core of Financial Networks? The Role of Meeting Technologies By Gregor Jarosch; Maryam Farboodi
  9. Formal entrepreneurial networks as communities of practice: a longitudinal case study By Vincent Lefebvre; Miruna Radu Lefebvre; Eric Simon
  10. Intermittent renewable generation and network congestion: an empirical analysis of Italian Power Market By Faddy Ardian; Silvia Concettini; Anna Creti
  11. Small World of Inter-firm Network an Firm's Acquisition Behaviour - An Evidence from India By Biswas, Shreya
  12. Media see-saws: Winners and losers on media platforms By Anderson, Simon P.; Peitz, Martin
  13. Logistic optimization in tourism networks By Armindo Frias; João Cabral; Ãlvaro Costa
  14. The Similarity of Global Value Chains: A Network-Based Measure By Zhen Zhu; Greg Morrison; Michelangelo Puliga; Alessandro Chessa; Massimo Riccaboni
  15. From Acquaintances to Friends: Homophily and Learning in Networks By Mihaela van der Schaar; Simpson Zhang
  16. Compliance Behavior in Networks: Evidence from a Field Experiment By Francesco Drago; Friederike Mengel; Christian Traxler
  17. Ownership networks and aggregate volatility By Lorenzo Burlon

  1. By: Gaston Llanes (Escuela de Administracion, Pontificia Universidad Catolica de Chile); Francisco Ruiz-Aliseda (Escuela de Administracion, Pontificia Universidad Catolica de Chile)
    Abstract: We study a two-sided market in which a platform connects consumers and sellers, and signs private contracts with sellers. We compare this situation with a two-sided market with public contracts. We find that the platform provider sets positive (negative) royalties to sellers and earns a negative (positive) markup on consumers when contracts are private (public). Thus, private contracting has a significant effect on the price structure. Private contracting leads to lower platform profits, consumer surplus, and social welfare. We study the welfare effects of most-favored-nation clauses, price-forcing contracts, and integration with sellers; and relate our results with the agency model of sales. Our results indicate that enhancing the market power of a dominant platform over sellers may increase welfare because it acts as a commitment device for inducing lower seller prices, mitigating the hold-up problem borne by consumers when they cannot observe sellers' contracts.
    Keywords: Two-Sided Markets; Platforms; Vertical Relations; Most-Favored Nation; Price-Forcing Contracts; Resale Price Maintenance; Integration; Agency Model of Sales
    JEL: L12 L14 L42
    Date: 2015–09
  2. By: Markus Kinateder (​University of Navarra); Luca Paolo Merlino (Universit e libre de Bruxelles)
    Abstract: In this paper we study a local public good game in an endogenous network with heterogeneous agents. We consider two specifications, in which different networks arise. When agents differ in the cost of acquiring the public good, active agents form hierarchical complete multipartite graphs; yet, better types need not have more neighbors. When agents have heterogeneous benefits from the public good, nested split graphs in which investment need not be monotonic in type emerge. In large societies, few agents are active and the network dampens inequality.
    Keywords: public goods,
    JEL: C72 D00 D85 H41
    Date: 2015–10–21
  3. By: Spiro Bougheas; Jeroen Nieboer; Martin Sefton
    Abstract: We report a controlled laboratory experiment examining risk-taking and information aggregation in groups facing a common risk. The experiment allows us to examine how subjects respond to new information, in the form of both privately observed signals and signals reported from others. We find that a considerable number of subjects exhibit ‘reverse confirmation bias’: they place less weight on information from others that agrees with their private signal and more weight on conflicting information. We also find a striking degree of consensus when subjects make decisions on behalf of the group under a random dictatorship procedure. Reverse confirmation bias and the incidence of consensus are considerably reduced when group members can share signals but not communicate.
    Keywords: Group behaviour; teams; decision making; risk; experiment
    JEL: C91 C92 D71 D80
    Date: 2015
  4. By: Kyle Wilson (University of Arizona, Department of Economics, McClelland Hall 401, PO Box 210108, Tucson, AZ 85721-0108);
    Abstract: Access to the internet is critical for participating in modern society, yet, 17% of Americans lack access to broadband internet, according to the Federal Communications Commission (FCC). A key objective of the FCC is to promote policies that advance the availability of quality telecommunications services across the United States. To that end, the FCC has recently secured funding to provide subsidies to internet service providers on a massive scale, and has been given considerable flexibility in the distribution of these funds. The aim of this paper is to identify the determinants of internet service providers' decisions about entry into new markets and upgrades to existing infrastructure, and to use this information to provide policy recommendations about how to target subsidies in order to best accomplish the longstanding goal of Universal Service. To do this, I develop a dynamic model, which encapsulates potential entrants' decisions to enter new markets as a low-speed or high-speed provider, as well as incumbents' decisions to upgrade their infrastructure, maintain service, or exit markets. I then estimate this model using data from the National Broadband Map, a recent initiative to precisely track availability of broadband internet across the United States. Then, I use this model to perform counterfactuals, which generate predictions of firm behaviors under a variety of proposed subsidy structures.
    Keywords: broadband internet; subsidies
    JEL: L13 L96 L98
    Date: 2015–09
  5. By: Thierry Theurillat (Real Estate and Construction Department, University of Hong Kong); Pierre-Yves Donzé (Graduate School of Economics, Osaka University)
    Abstract: Shopping centers are among the most significant places to sell luxury goods in East Asia. However, the relations between retail networks of luxury companies and access to land and real estate still need to be addressed. On the one hand, an extensive literature highlights how the turn to luxury industry since the 1990s has enabled some European countries to maintain their comparative advantage on the global market and at the same time to keep a significant part of their production non-globalized. Yet, an issue that remains to be addressed is the way European luxury companies are able to enter and expand their sales networks in emerging countries. On the other hand, while real estate has become a major economic circuit in East Asia, there is still a lack of works about the property industry and companiesf concrete strategies and business models. This article is hence an exploratory study that tackles the issue of real estate within the strategies of the main actors of the Swiss watch industry, namely Swatch Group, Richemont and LVMH, which have massively invested in their retail network in China and East Asia since the 1990s. While these three companies went through local retailers until late 1990s, they managed to expand their sales networks by increasingly controlling the retail spaces in China and in some Southeast Asia countries, such as Hong Kong, Singapore, Malaysia, Thailand, and Taiwan, increasingly influenced by Chinese consumers. For these countries which now represent a major part of their respective market shares, the Swiss watch groups rarely invest directly in large-scale real estate projects like shopping malls. They however have various strategies of control and integration between retail and the commercial real estate industry.
    Keywords: Swiss luxury watch companies, China and Southeast Asia, retail real estate
    JEL: L81 L85 N85 R3
    Date: 2015–10
  6. By: Stefan Lüthi; Alain Thierstein; Michael Hoyler
    Abstract: World cities are important nodes in the global networks of knowledge-based economies. As a result of the growing complexity of knowledge creation, firms increasingly organise their activities in business networks that operate across different spatial scales. On the global scale, new information and communication technologies enable the control of business processes across multiple locations. On the regional scale, the advantage of geographical proximity plays an important role. Collective learning processes require a common cognitive, social and cultural context as well as regular face-to-face contacts. Short distances bring people together, thereby stimulating information spillovers and the creation of new ideas. These places of intensive interaction are no longer exclusively located in the traditional inner cities. Rather, they are increasingly found in new urban centres, edge cities, airports or at the stations of high-speed rail networks. The result is a highly polycentric metropolitan system, characterised by accelerated growth in and around smaller cities and towns within the wider metropolitan orbit of one or several big cities. The growth of the knowledge economy has led to new forms of business networks linking cities and towns across different spatial scales. Various attempts have been made to analyse these networks empirically using the interlocking network model of the Globalization and World Cities (GaWC) research network. Two approaches can be distinguished from a spatial perspective: a global approach that studies the world city network from the perspective of the largest advanced producer service firms, and a national approach that starts with the most important knowledge-intensive firms located within specific territorial boundaries. This paper compares the methodological implications and empirical outcomes of both approaches with reference to recent case studies of the German space economy. Both approaches pursue similar objectives: to investigate external relations of German cities, both transnationally and on the national scale. Furthermore, both approaches use the same analytical instrument: the interlocking network model of GaWC. Differences exist in the theoretical argumentation: the global approach is grounded in world city research; the national approach, on the other hand, is anchored in debates in regional science, economic geography and spatial planning. In this paper, we argue for the need of scale-sensitive interpretations of connectivity patterns built by the interlocking network model and conclude with some tentative recommendations for the methodological direction of future research in world city network studies.
    Keywords: world city network; Germany; mega-city region; knowledge economy
    JEL: R12 R58
    Date: 2015–10
  7. By: Bryan S. Graham (Institute for Fiscal Studies and University of California, Berkeley)
    Abstract: I formulate and study a model of undirected dyadic link formation which allows for assortative matching on observed agent characteristics (homophily) as well as unrestricted agent level heterogeneity in link surplus (degree heterogeneity). Similar to fixed effects panel data analyses, the joint distribution of observed and unobserved agent-level characteristics is left unrestricted. To motivate the introduction of degree heterogeneity, as well as its fixed effect treatment, I show how its presence can bias conventional homophily measures. Two estimators for the (common) homophily parameter, beta0, are developed and their properties studied under an asymptotic sequence involving a single network growing large. The first,tetrad logit (TL), estimator conditions on a sufficient statistic for the degree heterogeneity. The TL estimator is a fourth-order U-Process minimizer. Although the fourth-order summation in the TL criterion function is over the i = 1...N agents in the network, due to a degeneracy property, the leading variance term of hat-beta_TL is of order 1/n, where n = N*(N-1)/2 equals the number of observed dyads. Using martingale theory, I show that the limiting distribution of hat-beta_TL (appropriately scaled and normalized) is normal. The second, joint maximum likelihood (JML), estimator treats the degree heterogeneity as additional (incidental) parameters to be estimated. The properties of hat-beta_JML are also non-standard due to a parameter space which grows with the size of the network. Adapting and extending recent results from random graph theory and non-linear panel data analysis (e.g., Chatterjee, Diaconis and Sly, 2011; Hahn and Newey, 2004), I show that the limit distribution of hat-beta_JML is also normal, but contains a bias term. Accurate inference necessitates bias-correction. The TL estimate is consistent under sparse graph sequences, where the number of links per agent is small relative to the total number of agents, as well as dense graphs sequences, where the number of links per agent is proportional to the total number of agents in the limit. Consistency of the JML estimate, in contrast, is shown only under dense graph sequences. The finite sample properties of hat-beta_TL and hat-beta_JML are explored in a series of Monte Carlo experiments.
    Date: 2015–08
  8. By: Gregor Jarosch (University of Chicago); Maryam Farboodi (Princeton University)
    Abstract: We study decentralized trading networks where agents differ in both their time-varying taste for an asset and the constant frequency at which they meet others. We show that a high meeting rate dampens the effect of the idiosyncratic taste on an agent's net valuation of an asset. As a consequence, the identity of the agents with a ``moderate'' valuation, and thus at the core of the financial network, remains relatively stable. This overcomes a common empirical deficiency of search-theoretic models of over-the-counter markets. In the model, traders not only differ in their time-varying taste for the asset, but also in the speed at which they trade. This implies that the option value of search differs across traders, and this option value moderates the impact of the flow value on a trader's net valuation of an asset. A higher option value of search for high frequency traders gives rise to fan shaped iso-value curves in the two-dimensional type space. As a result, the model offers a theory of intermediation in which the endogenous intermediators, that is the agents who are at the center of the intermediation chain, is quite stable. Moreover, the model sheds light on efficiency aspects of high frequency trading. We study whether an ex-ante investment into a meeting technology is efficient in an environment where agents are both buyers and sellers depending on whom they meet. Our preliminary results suggest that the well-known results in Hosios (1990) generalize to this environment.
    Date: 2015
  9. By: Vincent Lefebvre (Audencia Recherche - Audencia); Miruna Radu Lefebvre (Audencia Recherche - Audencia); Eric Simon (ISC Paris Business School - ISC Paris Business School)
    Abstract: This article argues that entrepreneurial learning is genuinely connected to entrepreneurial networking activities, within a co-evolving dynamics. We take a longitudinal network approach to study the combined development of network dynamics and learning in a French formal entrepreneurial network over a period of four years (2005-2009). Our aim is to extend our knowledge of entrepreneurial learning emphasised both as a process and an outcome of social interaction, by focussing on the interplay between network evolution and the changing learning needs of participants over time. Building on a situated social perspective of entrepreneurial learning, we demonstrate that network learning processes and outcomes are contingent on the progressive network transformation from a social network to a community of practice.
    Keywords: Formal entrepreneurial network,Learning,Community of practice
    Date: 2015
  10. By: Faddy Ardian (Ecole Polytechnique); Silvia Concettini (Ecole Polytechnique); Anna Creti (UP9 - Université Paris 9, Dauphine - Université Paris IX - Paris Dauphine, Ecole Polytechnique)
    Abstract: The literature demonstrates the likely reduction of wholesale electricity prices due to a larger penetration of renewable energy sources (RES). When markets are organized as two or more inter-connected sub-markets within a larger power market the final impact of increasing RES production may be less straightforward given the presence of network constraints. We tests this phenomenon by analyzing the impact of RES production on the probability of congestion and on the size of congestion cost in Italy. Using a database with hourly observations for a five year period we estimate two econometric models on five zonal pairings: a multinomial logit model for the occurrence and direction of congestion and a three stage least square model for the size of congestion costs. The analysis suggests that the effect of a larger local wind and solar supply is to decrease the probability of suffering congestion in entry and to increase the probability of causing a congestion in exit compared to no congestion case. Increasing hydroelectric production has a similar effect. These results hold for both importing and exporting regions, but importing regions are less likely to cause congestion in exit, therefore the installation of new RES capacity in these zones may have a positive effects in terms of flow balance between regions. Concerning the cost level, a larger local RES supply seems to push the congestion cost towards negative values as it decreases the marginal cost for balancing the system. This is true for all zones in the case of explicit congestion cost, but it is only verified in importing regions in the case of implicit congestion cost. This result suggests that the increase of RES production should be promoted in importing zones, but the overall growth should be controlled in order to avoid congestion in the opposite direction.
    Keywords: Electricity markets,Congestion, Zonal prices, Renewable production
    Date: 2015–10–21
  11. By: Biswas, Shreya
    Abstract: Using a sample of listed firms in India, the study finds that the inter-firm network on account of director interlocks is a small world and the network has become more integrated since the introduction of corporate governance regulations in the country. Firm level analysis finds a negative relation between average path length and probability of acquiring indicating the importance of faster reach of information among the firms within the network. It also finds a non-linear relation given by inverted U-shaped curve between firm level clustering and probability of acquiring. Initially, increase in clustering has a positive effect through the informational quality effect; however at higher levels the negative informational redundancy effect dominates leading to a curvilinear relation.
    Keywords: Corporate Governance, Small-world, Director Interlocks, Inter-firm Network, Acquisitions
    JEL: G32 G34 L25
    Date: 2015
  12. By: Anderson, Simon P.; Peitz, Martin
    Abstract: We customize the aggregative game approach to oligopoly to study asymmetric media markets. Advertiser, platform, and consumer surplus are tied together by a simple summary statistic. When media are ad-financed and ads are a nuisance to consumers we establish see-saws between consumers and advertisers. Entry of a lower-quality platform increases consumer surplus, but decreases advertiser surplus if industry platform profits decrease with entry. Merger decreases consumer surplus, but advertiser surplus increases when the profits of the higher-quality platform within the merger increase. By contrast, when platforms use two-sided pricing or consumers like advertising,advertiser and consumer interests are often aligned.
    Keywords: media economics , mergers , entry , advertising , aggregative games
    JEL: D43 L13
    Date: 2015
  13. By: Armindo Frias; João Cabral; Ãlvaro Costa
    Abstract: Tourism doesn?t depend on a specific resource and enable the integration of local populations and economies, generating benefits that have a stronger effect on regional development. Literature main stream identifies tourism as one of the activities with high impact on the development and for many regions, especially for small remote territories. In our natural laboratory, the Azores Island of São Miguel, an important share of tourists identifies adventure, leisure and touch with nature, as the main reasons for the visit. In this sense, footpaths are an important tool to promote environmental and social education, encouraging the observation and improving the knowledge about the nature and endorsing greater respect for our heritage. Its use can contribute to the satisfaction of tourists, promoting tourism and the region's development during their movements on the tourism network, tourists appreciate different types of attractions and need the support of a set of facilities. Tourist decisions aren?t always done in a rational way, emotions add even more complexity to the human decision process. The movement of tourists within a destination and the level of satisfaction that they can achieve, depends on factors related to tourist characteristics, like the time budgets, preferences or destination knowledge, and destination features related to attractions characteristics or accessibility level. In order to offer relevant tourism products, stakeholders need to understand how tourists take their decisions and what their preferences are. That knowledge will be able to build optimized tourism products that meet the tourists? preferences and facilities that allow the use of the network in an optimal way by the different tourist profiles. The existence of a mathematical model that incorporates the main factors that explain the movement of independent tourists within a destination, in a dynamic way, will make possible the creation of an adaptable software tool. This tool will meet the specific needs of tourism and the needs of regional business and government, according to their endogenous features, improving the optimization of investments in transport networks and the infrastructure that supports tourism related activities. This article is based on the authors? previous research and identifies the relevance of tourism for regional development and finds the main tourists? mobility criteria on the studded territory, using as main support the footpath network. Additionally, recognises the necessary modelling process and developed the foundation for the building of the mathematical model that explains the movement of tourists within the destination, making possible a future adaptable software tool.
    Keywords: logistics; facility localization; networks; tourism; regional development
    JEL: R41 R12 R32
    Date: 2015–10
  14. By: Zhen Zhu (IMT Institute for Advanced Studies Lucca); Greg Morrison (IMT Institute for Advanced Studies Lucca); Michelangelo Puliga (IMT Institute for Advanced Studies Lucca); Alessandro Chessa (IMT Institute for Advanced Studies Lucca); Massimo Riccaboni (IMT Institute for Advanced Studies Lucca and DMSI, K.U. Leuven, Leuven, Belgium)
    Abstract: International trade has been increasingly organized in the form of global value chains (GVCs) where different stages of production are located in different countries. This recent phenomenon has substantial consequences for both trade policy design at the national or regional level and business decision making at the firm level. In this paper, we provide a new method for comparing GVCs across countries and over time. First, we use the World Input-Output Database (WIOD) to construct both the upstream and downstream global value networks, where the nodes are individual sectors in different countries and the links are the value-added contribution relationships. Second, we introduce a network-based measure of node similarity to compare the GVCs between any pair of countries for each sector and each year available in the WIOD. Our networkbased similarity is a better measure for node comparison than the existing ones because it takes into account all the direct and indirect relationships between country-sector pairs, is applicable to both directed and weighted networks with self-loops, and takes into account externally defined node attributes. As a result, our measure of similarity reveals the most intensive interactions among the GVCs across countries and over time. From 1995 to 2011, the average similarity between sectors and countries have clear increasing trends, which are temporarily interrupted by the recent economic crisis. This measure of the similarity of GVCs provides quantitative answers to important questions about dependency, sustainability, risk, and competition in the global production system.
    Keywords: Networks, Node Similarity, Input-Output Analysis, Global Value Chains, Vertical Specialization, International Trade
    JEL: C67 F10 F15
    Date: 2015–09
  15. By: Mihaela van der Schaar; Simpson Zhang
    Abstract: This paper considers the evolution of a network in a discrete time, stochastic setting in which agents learn about each other through repeated interactions and maintain/break links on the basis of what they learn from these interactions. Agents have homophilous preferences and limited capacity, so they maintain links with others who are learned to be similar to themselves and cut links to others who are learned to be dissimilar to themselves. Thus learning influences the evolution of the network, but learning is imperfect so the evolution is stochastic. Homophily matters. Higher levels of homophily decrease the (average) number of links that agents form. However, the effect of homophily is anomalous: mutually beneficial links may be dropped before learning is completed, thereby resulting in sparser networks and less clustering than under complete information. There may be big differences between the networks that emerge under complete and incomplete information. Homophily matters here as well: initially, greater levels of homophily increase the difference between the complete and incomplete information networks, but sufficiently high levels of homophily eventually decrease the difference. Complete and incomplete information networks differ the most when the degree of homophily is intermediate. With multiple stages of life, the effects of incomplete information are large initially but fade somewhat over time.
    Date: 2015–10
  16. By: Francesco Drago (Università di Napoli Federico II and CSEF); Friederike Mengel (University of Essex and Maastricht University); Christian Traxler (Hertie School of Governance, Berlin, Max Planck Institute for Research on Collective Goods and CESifo)
    Abstract: This paper studies the spread of compliance behavior in neighborhood networks involving over 500,000 households in Austria. We exploit random variation from a field experiment which varied the content of mailings sent to potential evaders of TV license fees. Our data reveal a strong treatment spillover: ‘untreated’ households, who were not part of the experimental sample, are more likely to switch from evasion to compliance in response to the mailings received by their network neighbors. We analyze the spillover within a model of communication in networks based on DeGroot (1974). Consistent with the model, we find that (i) the spillover increases with the treated households’ eigenvector centrality and that (ii) local concentration of equally treated households produces a lower spillover. These findings carry important implications for enforcement policies.
    Keywords: neighborhood networks; social learning; spillover; evasion; field experiment.
    JEL: D8 H26 Z13
    Date: 2015–10–26
  17. By: Lorenzo Burlon (Bank of Italy)
    Abstract: We study how aggregate volatility is influenced by the propagation of idiosyncratic shocks across firms through the network of ownership relations. To this purpose, we use detailed data on cross-holdings as well as relevant balance sheet information for almost the universe of Italian limited liability firms over the period 2005-2013. We first document that the ownership network matters for the correlation across firms' sales. Then, we construct a model where firms are linked through ownership relations and have limited access to credit markets. We characterize key features of the network structure that are relevant for the dynamics of the economy. A calibration to key features of the Italian economy shows that the model-implied volatility can account for a sizable percentage of actual GDP fluctuations. Moreover, we conduct a counterfactual exercise to isolate the role played by the network structure alone in the propagation of idiosyncratic shocks to the aggregate level.
    Date: 2015

This nep-net issue is ©2015 by Yi-Nung Yang. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.