nep-net New Economics Papers
on Network Economics
Issue of 2017‒09‒17
three papers chosen by
Pedro CL Souza
Pontifícia Universidade Católica do Rio de Janeiro

  1. Firm Volatility in Granual Networks By Herskovic, Bernard; Kelly, Bryan; Lustig, Hanno; van Nieuwerburgh, Stijn
  2. Network-Mediated Knowledge Spillovers: A Cross-Country Comparative Analysis of Information Security Innovations By Branstetter, Lee; Gandal, Neil; Kunievsky, Nadav
  3. Informative Advertising in a Monopoly with Network Externalities By Azamat Valei

  1. By: Herskovic, Bernard; Kelly, Bryan; Lustig, Hanno; van Nieuwerburgh, Stijn
    Abstract: Firm volatilities co-move strongly over time, and their common factor is the dispersion of the economy-wide firm size distribution. In the cross section, smaller firms and firms with a more concentrated customer base display higher volatility. Network effects are essential to explaining the joint evolution of the empirical firm size and firm volatility distributions. We propose and estimate a simple network model of firm volatility in which shocks to customers influence their suppliers. Larger suppliers have more customers and the strength of a customer-supplier link depends on the size of the customer. The model produces distributions of firm volatility, size, and customer concentration that are consistent with the data.
    Keywords: aggregate volatility; firm size distribution; Firm volatility; granularity; networks
    JEL: E20 E3 G1 L14 L25
    Date: 2017–09
  2. By: Branstetter, Lee; Gandal, Neil; Kunievsky, Nadav
    Abstract: A large and growing literature has used patent and patent citation data to measure knowledge spillovers across inventions and organizations, but relatively few papers in this literature have explicitly considered the collaboration networks formed by inventors as a mechanism for shaping and transmitting these knowledge flows. This paper utilizes an approach developed by Fershtman and Gandal (FG 2011) (and applied to Open Source Software) to examine the incidence and nature of knowledge flows mediated by the collaboration networks of inventors active in the information security industry. This is an industry in which a number of nations outside the United States, including Israel, have emerged as important centers of innovation. Israeli prominence in this sector is often attributed, in part, to a dense network of personal collections and collaborations that has its genesis in elite intelligence units in the Israeli Defense Forces, through which many Israeli information security inventors and entrepreneurs receive their first exposure to this domain. Using data from U.S. PTO patent grants in information security, we find that the quality of Israeli information security inventions is systematically linked to the structure of the collaborative network generated by Israeli inventors in this sector. Using the FG (2011) model, this suggests that there are knowledge spillovers from the network. In some other nations, invention quality is less closely linked to the collaboration networks of inventors. This research highlights the importance of direct interaction among inventors as a conduit for flows of frontier scientific knowledge.
    Keywords: Information Security; Knowledge Spillovers; patents
    JEL: O31 O33 O57
    Date: 2017–09
  3. By: Azamat Valei
    Abstract: This paper studies the incentives for a monopolistic firm producing a good with network externalities to advertise when consumers face imperfect infor- mation and therefore must search to realize their actual willingness to pay for the good. A firm may disclose market information through advertising if it finds it beneficial. The results suggest that advertising is more likely in the case of a negative network effect and less likely with a positive network effect. When a monopolist faces a strong network externality, it chooses to support the maximum possible network and charge a price equal to the value of the externality. Finally, depending on the value of the search cost and type of network externality, a monopolist may use different advertising content: no information, price information only, product characteristics, or both price and product characteristics. Specifically, if all consumers have the same search cost, as the search cost grows the firm must include more informa- tion in the advertising content, while as the network externality changes from negative to positive, the firm reduces the content. In contrast, if consumers di¤er in their search costs, the firm tends to provide more information as the externality changes from negative to positive.
    Keywords: advertising; search; network effects; consumption externality; band- wagon; snob effect; monopoly; industrial organization;
    JEL: D42 D83 D85 L12
    Date: 2017–06

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