nep-net New Economics Papers
on Network Economics
Issue of 2018‒05‒07
five papers chosen by
Pedro CL Souza
Pontifícia Universidade Católica do Rio de Janeiro

  1. Social Media Networks, Fake News, and Polarization By Marina Azzimonti; Marcos Fernandes
  2. Social Clubs and Social Networks By Fershtman, Chaim; Persitz, Dotan
  3. Waiting for my neighbors By Gordon, Sidartha; Henry, Emeric; Murto, Pauli
  4. Networks and Trade By Andrew B. Bernard; Andreas Moxnes
  5. Pricing and Diffusion of Durables with Network Externalities By Hattori, Keisuke; Zennyo, Yusuke

  1. By: Marina Azzimonti; Marcos Fernandes
    Abstract: We study how the structure of social media networks and the presence of fake news might affect the degree of misinformation and polarization in a society. For that, we analyze a dynamic model of opinion exchange in which individuals have imperfect information about the true state of the world and are partially bounded rational. Key to the analysis is the presence of internet bots: agents in the network that do not follow other agents and are seeded with a constant flow of biased information. We characterize how the flow of opinions evolves over time and evaluate the determinants of long-run disagreement among individuals in the network. To that end, we create a large set of heterogeneous random graphs and simulate a long information exchange process to quantify how the bots’ ability to spread fake news and the number and degree of centrality of agents susceptible to them affect misinformation and polarization in the long-run.
    JEL: C45 C63 D72 D8 D83 D85 D91
    Date: 2018–03
  2. By: Fershtman, Chaim; Persitz, Dotan
    Abstract: We present a strategic network formation model which is based on membership in clubs. Agents choose a set of clubs with which they wish to be affiliated. The set of all club memberships (an environment) induces a weighted network in which two agents are directly connected if they are members of the same club. Two agents may also be indirectly connected using the multiple memberships of third parties. Agents gain from their position in the induced network and pay membership fees. Thus, both clubs and the network are formed simultaneously. Using two specifications of the weighting function we introduce two models based upon congestion - one, the club congestion model wherein the weight of each link depends upon the size of the smallest shared club and the other, the individual congestion model wherein each link's weight depends on the number of affiliations maintained by the two agents. In the club congestion model we focus on the trade-off between the size of the club, depreciation due to indirect connections and membership fees. In the individual congestion model the Grand Club environment is the unique efficient environment. However, a coordination failure arises due to the wide externalities incurred by the formation of new affiliations. We believe that this framework may serve as a basis for an empirical examination of the role of linking platforms in shaping real-life social networks.
    Date: 2018–04
  3. By: Gordon, Sidartha; Henry, Emeric; Murto, Pauli
    Abstract: We introduce a neighborhood structure in waiting games where the players decide when to``stop" (exit a market, adopt a technology). The payoff of stopping increases each time a neighbor stops. We show that the dynamic evolution of the network starkly depends on initial parameters and can take the form of either a shrinking network, where players at the edges stop first, or a fragmenting network where interior players stop first making the network split up in smaller ones over time. We find that, in addition to the coordination inefficiency standard in waiting games, the neighbourhood structure gives rise to two other inefficiencies, the first linked to the order of exit and the second to the final distribution of remaining nodes. We consider subsidy programs aimed at correcting these inefficiencies.
    Keywords: inefficiencies; networks; waiting games
    JEL: C73 D83 D85
    Date: 2018–03
  4. By: Andrew B. Bernard; Andreas Moxnes
    Abstract: Trade occurs between firms both across borders and within countries, and the vast majority of trade transactions includes at least one large firm with many trading partners. This paper reviews the literature on firm-to-firm connections in trade. A growing body of evidence coming from domestic and international transaction data has established empirical regularities which have inspired the development of new theories emphasizing firm heterogeneity among both buyers and suppliers in production networks. Theoretical work has considered both static and dynamic matching environments in a framework of many-to-many matching. The literature on trade and production networks is at an early stage, and there are a large number of unanswered empirical and theoretical questions.
    Keywords: international trade, production networks, offshoring, productivity
    JEL: F10 F12 F14 L11 L21
    Date: 2018–04
  5. By: Hattori, Keisuke; Zennyo, Yusuke
    Abstract: This paper considers the optimal pricing and diffusion of a durable good that exhibits positive network externalities, when consumers are heterogeneous with respect to their expectations about future network sizes. We consider the existence of naive consumers, as well as of sophisticated consumers who have fulfilled expectations about future network sizes. At the time of purchase, naive consumers presume that the current network size will continue over future periods. We find that the firm charges the sequential-diffusion pricing that makes sophisticated consumers function as early adopters, unless consumers quickly become bored with using the goods and/or unless the firm heavily discounts its future profits. In addition, we show that naive consumers may enjoy a greater surplus than do sophisticated consumers, implying that the firm benefits when more consumers are sophisticated. We also compare the profitability of three possible pricing strategies with different commitment powers: fixed, responsive, and pre-announced pricing.
    Keywords: durable good; network externalities; diffusion process; consumer naivete
    JEL: D21 D42 L12 L14
    Date: 2018–04–15

This nep-net issue is ©2018 by Pedro CL Souza. 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.