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on Network Economics |
| By: | Ryohei Hisano (Social ICT Research Center, Graduate School of Information Science and Technology, The University of Tokyo); Tsutomu Watanabe (Graduate School of Economics, The University of Tokyo); Takayuki Mizuno (Information and Society Research Division, National Institute of Informatics); Takaaki Ohnishi (Social ICT Research Center, Graduate School of Information Science and Technology, The University of Tokyo); Didier Sornette (Department of Management, Technology and Economics, ETH Zurich, Swiss Federal Institute of Technology) |
| Abstract: | Buyer-seller relationships among firms can be regarded as a longi- tudinal network in which the connectivity pattern evolves as each firm receives productivity shocks. Based on a data set describing the evolu- tion of buyer-seller links among 55,608 firms over a decade and structural equation modeling, we find some evidence that interfirm networks evolve reflecting a firm's local decisions to mitigate adverse effects from neigh- bor firms through interfirm linkage, while enjoying positive effects from them. As a result, link renewal tends to have a positive impact on the growth rates of firms. We also investigate the role of networks in aggregate fluctuations. |
| Date: | 2016–08 |
| URL: | http://d.repec.org/n?u=RePEc:upd:utppwp:068&r=net |
| By: | Michiel C.W. van de Leur (VU University Amsterdam, the Netherlands); Andre Lucas (VU University Amsterdam, the Netherlands) |
| Abstract: | We investigate the information content of stock correlation based network measures for systemic risk rankings, such as SIFIRank (based on Google's PageRank). Using European banking data, we first show that SIFIRank is empirically equivalent to a ranking based on average pairwise stock correlations. Next, we find that correlation based network measures still appear to complement currently available systemic risk ranking methods based on book or market values. A further analytical investigation, however, shows that the value-added appears to be mainly attributable to pairwise cross-sectional heterogeneity rather than to more subtle network relations and feedback loops. |
| Keywords: | Systemically Important Financial Institutions (SIFI); European banking sector; systemic risk rankings; network based risk measures |
| JEL: | G01 G21 |
| Date: | 2016–09–08 |
| URL: | http://d.repec.org/n?u=RePEc:tin:wpaper:20160074&r=net |
| By: | Jeon, Doh-Shin; Kim, Byung-Cheol; Menicucci, Domenico |
| Abstract: | In this article we study second-degree price discrimination by a two-sided monopoly platform. We find novel distortions that arise due to the two-sidedness of the market. They make the standard result "no distortion at top and downward distortion at bottom" not holding. They generate a new type of non-responsiveness, different from the one found by Guesnerie and Laffont (1984). We also show that the platform may mitigate or remove non-responsiveness at one side by properly designing price discrimination on the other side. These findings help to address our central question, i.e., when price discrimination on one side substitutes for or complements price discrimination on the other side. As an application, we study the optimal mechanism design for an advertising platform mediating advertisers and consumers. |
| Keywords: | (second-degree) price discrimination; advertising; non-responsiveness; Two-sided markets; type reversal |
| JEL: | D4 D82 L5 M3 |
| Date: | 2016–09 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:11488&r=net |
| By: | Jeon, Doh-Shin; Kim, Byung-Cheol; Menicucci, Domenico |
| Abstract: | In this article we study second-degree price discrimination by a two-sided monopoly platform. We find novel distortions that arise due to the two-sidedness of the mar- ket. They make the standard result \no distortion at top and downward distortion at bottom" not holding. They generate a new type of non-responsiveness, different from the one found by Guesnerie and Laffont (1984). We also show that the platform may mitigate or remove non-responsiveness at one side by properly designing price discrimi- nation on the other side. These findings help to address our central question, i.e., when price discrimination on one side substitutes for or complements price discrimination on the other side. As an application, we study the optimal mechanism design for an advertising platform mediating advertisers and consumers. |
| Keywords: | (second-degree) price discrimination, two-sided markets, non-responsiveness, type reversal, advertising |
| JEL: | D4 D82 L5 M3 |
| Date: | 2016–09 |
| URL: | http://d.repec.org/n?u=RePEc:tse:wpaper:30705&r=net |
| By: | Edoardo Gaffeo; Massimo Molinari |
| Abstract: | The financial sector is a critical component of any economic system, as it delivers key qualitative asset transformation services in terms of liquidity, maturity and volume. Although these functions could in principle be carried out separately by specialized actors, in the end it is their systemic co-evolution the determines how the aggregate economy performs and withstands disruptions. In this paper we argue that a functional perspective to financial intermediation can be usefully employed to investigate the functioning of financial networks. We do this in two steps. First, we use previously unreleased data to show that focusing on the economic functions performed over time by the different institutions exchanging funds in an interbank market can be informative, even if the underlying topological structure of their relations remains constant. Sec- ond, a set of alternative artificial histories are generated and stress-tested by using real data as a calibration base, with the aim of performing counterfactual welfare comparisons among different topological structures. |
| Keywords: | Financial Networks; Functional Perspective; Money-Center Banks |
| JEL: | C63 D85 G21 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:trn:utwprg:2016/06&r=net |
| By: | Makarewicz, T.A. (University of Amsterdam) |
| Abstract: | The paper studies the e ect of information networks on learning to forecast in an asset pricing market. Financial traders have heterogeneous price expectations, are influenced by friends and seem to be prone to herding. However, in laboratory experiments subjects use contrarian strategies. Theoretical literature on learning in networks is scarce and cannot explain this conundrum (Panchenko et al., 2013). The paper follows Anufriev et al. (2014) and investigates an agent-based model, in which agents forecast price with a simple general heuristic: adaptive and trend extrapolation expectations, with an additional term of (dis-)trust towards their friends' mood. Agents independently use Genetic Algorithms to optimize the parameters of the heuristic. The paper considers friendship networks of symmetric (regular lattice, fully connected) and asymmetric architecture (random, rewired, star). The main finding is that the agents learn contrarian strategies, which amplifies market turn-overs and hence price oscillations. Nevertheless, agents learn similar behavior and their forecasts remain well coordinated. The model therefore o ers a natural interpretation for the di erence between the experimental stylized facts and market surveys. |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:ams:ndfwpp:15-08&r=net |
| By: | Khmelnitskaya, A.; van der Laan, G.; Talman, Dolf (Tilburg University, Center For Economic Research) |
| Abstract: | In this paper we introduce two values for cooperative games with communication graph structure. For cooperative games the shapley value distributes the worth of the grand coalition amongst the players by taking into account the worths that can be obtained by any coalition of players, but does not take into account the role of the players when communication between players is restricted. Existing values for communication graph games as the Myerson value and the average tree solution only consider the worths of connected coalitions and respect only in this way the communication restrictions. The two values take into account the position of a player in the graph. The rst one respects centrality, but not the communication abilities of any player. The second value reflects both centrality and the commu- nication ability of each player. That implies that in unanimity games players that do not generate worth but are needed to connect worth generating players are treated as those latter players, and simultaneously players that are more central in the graph get bigger shares in the worth than players that are less central. For both values an axiomatic characterization is given on the class of connected cycle-free graph games. |
| Keywords: | cooperative game; Shapley value; communication graph; restricted cooperation; Centrality |
| JEL: | C71 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:tiu:tiucen:f449b907-5e19-4702-b48e-a1c812747507&r=net |
| By: | Pragyan Deb |
| Abstract: | This paper studies banks' decision to form financial interconnections using a model of financial contagion that explicitly takes into account the crisis state of the world. This allows us to model the network formation decision as optimising behaviour of competitive banks, where they balance the benefits of forming interbank linkages against the cost of contagion. We use this framework to study various market frictions that can result in excessive interconnectedness that was seen during the crisis. In this paper, we focus on two channels that arise from regulatory intervention—deposit insurance and the too big to fail problem. |
| Keywords: | Banks;Interconnectedness;Financial contagion;Financial crises;Deposit insurance;Systemically important financial institutions;Too-big-to-fail;Econometric models;Contagion, network formation, financial crises, deposit insurance, too-big-to-fail. |
| Date: | 2016–08–26 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:16/180&r=net |
| By: | Choi, Jay-Pil; Jeon, Doh-Shin |
| Abstract: | Partly motivated by the recent antitrust investigations concerning Google, we develop a leverage theory of tying in two-sided markets. We analyze incentives for a monopolist to tie its monopolized product with another product in a two-sided market. Tying provides a mechanism to circumvent the non-negative price constraint in the tied product market without inviting an aggressive response as the rival firm faces the non-negative price constraint. We identify conditions under which tying in two-sided markets is profitable and explore its welfare implications. Our mechanism can be more widely applied to any markets in which sales to consumers in one market can generate additional revenues that cannot be competed away due to non-negative price constraints. |
| Keywords: | Leverage of monopoly power; Non-negative pricing constraint; Two-sided markets; Tying; Zero pricing |
| JEL: | D4 L1 L5 |
| Date: | 2016–09 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:11484&r=net |
| By: | Alexei P Kireyev; Andrei Leonidov |
| Abstract: | This paper proposes a network model of multilaterally equilibrium exchange rates. The model introduces a topological component into the exchange rate analysis, consistently taking into account simultaneous higher-order interactions among all currencies. The paper defines the currency demand indicator. On its base, it derives a multilateral exchange rate network, finds its dynamically stationary position, and identifies the multilaterally equilibrium levels of bilateral exchanges rates. Potentially, the model can be developed further to calculate the deviations of the observed bilateral exchange rates from their multilaterally equilibrium levels, which can be interpreted as their over- or undervaluation. For illustration, the model is applied to daily 1995-2016 exchange rates among 130 currencies sourced from the Thomson Reuters Datastream. |
| Keywords: | Exchange rates;Currencies;Supply and demand;Econometric models;Time series;exchange rate, networks, equilibrium, trade, network. |
| Date: | 2016–07–06 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:16/130&r=net |
| By: | Gabriele Camera (Chapman University and University of Basel); Dror Goldberg (The Open University of Israel); Avi Weiss (Bar-Ilan University and Taub Center for Social Policy Research of Israel and IZA) |
| Abstract: | The theory of money assumes decentralized bilateral exchange and excludes centralized multilateral exchange. However, endogenizing the exchange process is critical for understanding the conditions that support the use of money. We develop a “travelling game” to study the spontaneous emergence of decentralized and centralized exchange, theoretically and experimentally. Players located on separate “islands” can either trade locally, or pay a cost to trade elsewhere, so decentralized and centralized markets can both emerge in equilibrium. The latter maximize trade meetings and are socially efficient; the former minimize trade costs through the use of money. In the laboratory, centralized exchange more frequently emerges when subjects perform diversified economic tasks, but also when they interact in large groups. This shows that to understand the emergence of money it is important to amend the theory of money such that the market structure is endogenized. |
| Keywords: | endogenous institutions, macroeconomic experiments, matching, coordination, markets, money |
| JEL: | E4 E5 C9 C92 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:chu:wpaper:16-19&r=net |