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on Network Economics |
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Issue of 2016‒11‒20
four papers chosen by Pedro CL Souza Pontifícia Universidade Católica do Rio de Janeiro |
| By: | Philip Ushchev (NRU-Higher School of Economics); Yves Zenou (Monash University, Stockholm University, IFN and CEPR) |
| Abstract: | We develop a product-differentiated model where the product space is a network defined as a set of varieties (nodes) linked by their degrees of substitutability (edges). We also locate consumers into this network, so that the location of each consumer (node) corresponds to her “ideal” variety. We show that, even though prices need not to be strategic complements, there exists a unique Nash equilibrium in the price game among firms. Equilibrium prices are determined by both firms’ sign-alternating 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: | Networks, Product Variety, Monopolistic Competition, Spatial Competition |
| JEL: | D43 L11 L13 |
| Date: | 2016–09 |
| URL: | http://d.repec.org/n?u=RePEc:fem:femwpa:2016.59&r=net |
| By: | Peiran Jiao; Andre Veiga; Ansgar Walther |
| Abstract: | Abstract: We contrast the impact of traditional news media and social media coverage on stock market volatility and trading volume. We develop a theoretical model of asset pricing and information processing, which allows for both rational traders and a variety of commonly studied behavioral biases. The model yields several novel and testable predictions about the impact of news and social media on asset prices. We then test the model’s theoretical predictions using a unique dataset which measures coverage of individual stocks in social and news media using a broad spectrum of print and online sources. Stocks with high social media coverage in one month experience high idiosyncratic volatility of returns and trading volume in the following month. Conversely, stocks with high news media coverage experience low volatility and low trading volume in the following month. These effects are statistically and economically significant and robust to controlling for stock and time fixed effects, as well as time-varying stock characteristics. The empirical evidence on news media is consistent with a market in which some traders are overconfident when interpreting new information. The evidence on social media is consistent with Tetlock (2011)’s “stale news” hypothesis (investors treat repeated information on social networks as though it were new) and with a model where investors’ perceptions are subject to random sentiment shocks. |
| Keywords: | Social media, news media, behavioral finance, volatility, trading volume |
| JEL: | G02 G12 G14 |
| Date: | 2016–10–12 |
| URL: | http://d.repec.org/n?u=RePEc:oxf:wpaper:paper-805&r=net |
| By: | Belleflamme, Paul; Peitz, Martin |
| Abstract: | In many markets, user benefits depend on participation and usage decisions of other users giving rise to network effects. Intermediaries manage these network effects and thus act as platforms that bring users together. This paper reviews key findings from the literature on network effects and two-sided platforms. It lays out the basic models of monopoly platforms and platform competition, and elaborates on some routes taken by recent research. |
| Keywords: | Network effects , digital platforms , two-sided markets , tipping , platform competition , intermediation , pricing , imperfect competition |
| JEL: | D43 L13 L86 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:mnh:wpaper:41306&r=net |
| By: | Banchongsan Charoensook (Keimyung Adams College, Keimyung University) |
| Abstract: | This paper studies a noncooperative model of network formation. Built upon the two-way flow model of Bala and Goyal (2000a), it assumes that information decay as it flows through each agent, and the decay is increasing and concave in the number of his links. This assumption results in the fact that a large set of Nash networks are disconnected and consist of components of different sizes, a feature that resembles that of real-world networks. Discussions on this insight are provided. |
| Keywords: | Two-way Flow Network, Network Formation, Information Network |
| JEL: | C72 D85 |
| Date: | 2016–11 |
| URL: | http://d.repec.org/n?u=RePEc:fem:femwpa:2016.65&r=net |