|
on Network Economics |
| By: | Gaston Llanes (Pontificia Universidad Catolica de Chile, Escuela de Administracion, Vicuna Mackenna 4860, Macul, Santiago, Chile); Andrea Mantovani (Department of Economics, University of Bologna, Strada Maggiore 45, 40125 Bologna, Italy); Francisco Ruiz-Aliseda (Pontificia Universidad Catolica de Chile, Escuela de Administracion, Vicuna Mackenna 4860, Macul, Santiago, Chile) |
| Abstract: | We examine whether an incumbent active in a market with strong network effects can be challenged by an entrant already active in the market of a complementary good. When only the entrant benefits from such a complementarity in the network market, we find that it can conquer such a market if and only if the degree of complementarity is large enough. In such cases, the entrant may use the network good as a loss-leader so as to expand the market of the complementary good. When the incumbent's network good is enhanced too by the existence of the complementary good, we study if the entrant is better or worse off. Finally, we argue that, even though pure bundling may be an effective entry strategy and it may be socially desirable, it may be harmful for the entrant to use it. |
| Keywords: | network effects; complementarities; bundling; incumbency advantage; entry |
| JEL: | L13 L14 L41 |
| Date: | 2016–09 |
| URL: | http://d.repec.org/n?u=RePEc:net:wpaper:1612&r=net |
| By: | Christian Roessler; Sandro Shelegia; Bruno Strulovici |
| Abstract: | We consider collective decisions made by agents whose preferences and power depend on past events and decisions. Faced with an inecient equilibrium and an opportunity to commit to a policy, can the agents reach an agreement on such a policy? We provide a consistency condition linking power structures in the dynamic setting and at the commitment stage. When the condition holds, commitment has no value: any agreement that may be reached at the outset coincides with the equilibrium without commitment. When the condition fails, as in the case of time-inconsistent preferences, commitment can improve outcomes. We discuss several applications. |
| JEL: | D70 H41 C70 |
| Date: | 2016–07 |
| URL: | http://d.repec.org/n?u=RePEc:bge:wpaper:933&r=net |
| By: | Jacob Malone (University of Georgia, Department of Economics); Aviv Nevo (University of Pennsylvania, Department of Economics); Jonathan Williams (University of North Carolina - Chapel Hill, Department of Economics) |
| Abstract: | We exibly estimate demand for residential broadband accounting for congestion externalities that arise among consumers due to limited network capacity, as well as dynamics arising from nonlinear pricing. Our high frequency data permits insight into temporal patterns in usage across the day that are impacted by network congestion, and how usage responds to efforts to mitigate congestion. To estimate demand, we build a dynamic model of consumer choice and rely on variation in the timing of network upgrades and nonlinear pricing to identify the model. Using the model estimates, we calculate the welfare changes associated with different economic and technological solutions for reducing congestion, including peak-use pricing, throttling connectivity speeds, and local-cache technologies. |
| Keywords: | demand; broadband; congestion; peak-use pricing |
| JEL: | L11 L13 L96 |
| Date: | 2016–09 |
| URL: | http://d.repec.org/n?u=RePEc:net:wpaper:1620&r=net |
| By: | Sümeyra Atmaca; Koen Schoors; Marijn Verschelde (-) |
| Abstract: | In this paper, we consider how the intensity and channels of the relation between social networks and bank loyalty vary according to the state of the economy. We analyze bank exit over the period 2005-2012 for over 300,000 retail clients of a commercial bank that experienced a bank run in 2008 due to a solvency risk. The unique and rich data we constructed in close collaboration with the bank enables us to distinguish different sorts of family networks from neighborhood networks, while controlling for a wide battery of client-level and branch-level characteristics and events. Using a proportional hazards model, we show the importance of family networks. In times of nancial distress, family networks become even more important and retail clients take weaker, less direct social relationships into account. |
| Keywords: | peer e ects; social networks; bank exit; nancial crisis; depositor discipline. |
| JEL: | D12 G01 G21 |
| Date: | 2016–10 |
| URL: | http://d.repec.org/n?u=RePEc:rug:rugwps:16/923&r=net |
| By: | Tiziano Squartini; Giulio Cimini; Andrea Gabrielli; Diego Garlaschelli |
| Abstract: | Reconstructing weighted networks from partial information is necessary in many important circumstances, e.g. for a correct estimation of systemic risk. It has been shown that, in order to achieve an accurate reconstruction, it is crucial to reliably replicate the empirical degree sequence, which is however unknown in many realistic situations. More recently, it has been found that the knowledge of the degree sequence can be replaced by the knowledge of the strength sequence, which is typically accessible, complemented by that of the total number of links, thus considerably relaxing the observational requirements. Here we further relax these requirements and devise a procedure valid when even the the total number of links is unavailable. We assume that, apart from the heterogeneity induced by the degree sequence itself, the network is homogeneous, so that its link density can be estimated by sampling subsets of nodes with representative density. We show that the best way of sampling nodes is the random selection scheme, any other procedure being biased towards unrealistically large, or small, link density. We then introduce our core technique for reconstructing in detail both the topology and the link weights of the unknown network. When tested on real economic and financial data, our method achieves a remarkable accuracy and is very robust with respect to the nodes sampled, thus representing a reliable practical tool whenever the available topological information is restricted to a small subset of nodes. |
| Date: | 2016–10 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1610.05494&r=net |
| By: | Thomas R. Hurd; James P. Gleeson; Sergey Melnik |
| Abstract: | We introduce a probabilistic framework that represents stylized banking networks with the aim of predicting the size of contagion events. Most previous work on random financial networks assumes independent connections between banks, whereas our framework explicitly allows for (dis)assortative edge probabilities (e.g., a tendency for small banks to link to large banks). We analyze default cascades triggered by shocking the network and find that the cascade can be understood as an explicit iterated mapping on a set of edge probabilities that converges to a fixed point. We derive a cascade condition that characterizes whether or not an infinitesimal shock to the network can grow to a finite size cascade, in analogy to the basic reproduction number $R_0$ in epidemic modelling. The cascade condition provides an easily computed measure of the systemic risk inherent in a given banking network topology. Using the percolation theory for random networks we also derive an analytic formula for the frequency of global cascades. Although the analytical methods are derived for infinite networks, we demonstrate using Monte Carlo simulations the applicability of the results to finite-sized networks. We show that edge-assortativity, the propensity of nodes to connect to similar nodes, can have a strong effect on the level of systemic risk as measured by the cascade condition. However, the effect of assortativity on systemic risk is subtle, and we propose a simple graph theoretic quantity, which we call the graph-assortativity coefficient, that can be used to assess systemic risk. |
| Date: | 2016–10 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1610.03936&r=net |
| By: | Jiang, Ge; Weidenholzer, Simon |
| Abstract: | We study the impact of switching costs on the long run outcome in 2x2 coordination games played in the circular city model of local interactions. For low levels of switching costs the predictions are in line with the previous literature and the risk dominant convention is the unique long run equilibrium. For intermediate levels of switching costs the set of long run equilibria still contains the risk dominant convention but may also contain conventions that are not risk dominant. The set of long run equilibria may further be non-monotonic in the level of switching costs, i.e. as switching costs increase the prediction that the risk dominant convention is the unique long run equilibrium and the prediction that both conventions are long run equilibria alternate. Finally, for high levels of switching costs also non-monomorphic states will be included in the set of long run equilibria. |
| Date: | 2016–09 |
| URL: | http://d.repec.org/n?u=RePEc:esx:essedp:17770&r=net |
| By: | Giuseppe Brandi; Riccardo Di Clemente; Giulio Cimini |
| Abstract: | Financial contagion from liquidity shocks has being recently ascribed as a prominent driver of systemic risk in interbank lending markets. Building on standard compartment models used in epidemics, here we develop an EDB (Exposed-Distressed-Bankrupted) model for the dynamics of liquidity shocks reverberation between banks, and validate it on electronic market for interbank deposits data. We show that the interbank network was highly susceptible to liquidity contagion at the beginning of the 2007/2008 global financial crisis, and that the subsequent micro-prudential and liquidity hoarding policies adopted by banks increased the network resilience to systemic risk, yet with the undesired side effect of drying out liquidity from the market. We finally show that the individual riskiness of a bank is better captured by its network centrality than by its participation to the market, along with the currently debated concept of "too interconnected to fail". |
| Date: | 2016–10 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1610.03259&r=net |
| By: | Mohamed Belhaj (AMSE - Aix-Marseille School of Economics - EHESS - École des hautes études en sciences sociales - Centre national de la recherche scientifique (CNRS) - Ecole Centrale Marseille (ECM) - AMU - Aix-Marseille Université); Frédéric Deroïan (AMSE - Aix-Marseille School of Economics - EHESS - École des hautes études en sciences sociales - Centre national de la recherche scientifique (CNRS) - Ecole Centrale Marseille (ECM) - AMU - Aix-Marseille Université) |
| Abstract: | We study the value of network information in a context of monopoly pricing in the presence of local network externalities. We compare a setting in which all players, i.e. the monopoly and consumers, know the network structure and consumers' private preferences with a setting in which players only know the joint distribution of preferences, in-degrees and out-degrees. We give conditions under which network information increases profit or/and consumer surplus. The analysis reveals the crucial role played by four properties: degree assortativity, homophily (in preferences), preference-degree assortativity and preference-Bonacich centrality assortativity. |
| Keywords: | monopoly,network effects,price discrimination,Bonacich centrality,network information,degree assortativity,homophily,preference-degree assortativity,preference-Bonacich centrality assortativity |
| Date: | 2016–05 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:halshs-01314954&r=net |
| By: | Christian Jaag; Christian Bach |
| Abstract: | This paper interprets the postal mailstream as a platform with two market sides in a theoretical model: On the one side of the market, advertisers (senders of direct mail) and senders of transactional mail are customers for mail services. On the other side of the market, there are the recipients. The value of direct mail for its sender depends on the quality of the mailmix, i.e. the number of transactional mail items in the mailstream. Hence, there is an interdependency between the two types of mail. This interdependency effects the equilibrium allocation, especially optimal prices. The paper analyzes these effects in two frameworks: A postal monopoly and (direct) postal competition within the mailstream as a platform. It also discusses their implications for (indirect) competition with other communication platforms. A postal monopolist has a strong incentive to lower transactional mail's price in order to increase the mail platform's attractiveness for direct mail. Electronic substitution of transactional mail thwarts these efforts. In addition, direct competition degrades the mailmix because new postal operators tend to focus on bulk and direct, rather than transactional mail. Thereby, direct competition indirectly contributes to the substitution of direct mail. |
| Keywords: | Postal Sector, Platform, Two-sided market |
| JEL: | L43 L51 |
| Date: | 2016–04 |
| URL: | http://d.repec.org/n?u=RePEc:chc:wpaper:0055&r=net |
| By: | Batchimeg Sambalaibat (Indiana University); Artem Neklyudov (University of Lausanne and SFI) |
| Abstract: | OTC markets exhibit a core-periphery network: 10-30 central dealers trade frequently and with many dealers, while hundreds of peripheral dealers trade sparsely and with few dealers. Existing work rationalize this phenomenon with exogenous dealer heterogeneity. We build a search-based model of network formation and propose that a core-periphery network arises from specialization. Dealers endogenously specialize in different clients with different liquidity needs. The clientele difference across dealers, in turn, generates dealer heterogeneity and the core-periphery network: The dealers specializing in clients who trade frequently form the core, while the dealers specializing in buy-and-hold investors form the periphery. |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed016:1041&r=net |
| By: | F. Aleskerov; N. Meshcheryakova; S. Shvydun |
| Abstract: | We propose a new method for assessing agents influence in network structures, which takes into consideration nodes attributes, individual and group influences of nodes, and the intensity of interactions. This approach helps us to identify both explicit and hidden central elements which cannot be detected by classical centrality measures or other indices. |
| Date: | 2016–10 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1610.05892&r=net |
| By: | Ron Berman (Marketing Department, The Wharton School, University of Pennsylvania, 3730 Walnut St., Philadelphia, PA 19103, USA); Zsolt Katona (Marketing Department, Haas School of Business, University of California, Berkeley, 2220 Piedmont Ave., Berkeley, CA 94720, USA) |
| Abstract: | Curation algorithms are selection and ranking algorithms on social media that help consumers experience better content. These algorithms have been blamed in the past few years for the creation of “filter bubbles” and other phenomena in social media. We analyze a platform with producers and consumers of content to understand the impact of curation algorithms on the amount of friends each consumer has and the quality of content created by each producer. Our model takes into account both vertical and horizontal differentiation and analyzes three different types of algorithms. We find that without algorithmic curation, the number of friends a consumer has and the quality of cotent on the platform are strategic complements. When algorithmic curation is introduced, the resulting process makes consumers less selective in their choice of whom to follow. In equilibrium, producers of content receive lower payoffs because they enter into a prisoner’s dilema like contest. The quality of content on the platform may increase if the marginal cost of producing this quality is high enough but not too high. Both of these effects may result theoretically in more diverse content consumed by consumers, but in equilibrium we find that a few of the algorithms may reduce the horizontal distance of matched content, which may result in a filter bubble. We identify an algorithm that focuses on filtering low quality items that results in higher quality of content as well as higher diversity under specific conditions. |
| Keywords: | Social Media; Filtering; Ranking; Filter Bubble; Algorithmic Curation; Game Theory |
| JEL: | D85 D83 M31 L82 L86 |
| Date: | 2016–09 |
| URL: | http://d.repec.org/n?u=RePEc:net:wpaper:1608&r=net |