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on Network Economics |
| By: | Johannes Boehm; Jan Sonntag |
| Abstract: | This paper studies the prevalence of vertical market foreclosure using a novel dataset on U.S. and international buyer-seller relationships, and across a large range of industries. We find that relationships are more likely to break when suppliers vertically integrate with one of the buyers' competitors than when they vertically integrate with an unrelated firm. This relationship holds for both domestic and cross-border mergers, and for domestic and international relationships. It also holds when instrumenting mergers using exogenous downward pressure on the supplier's stock prices, suggesting that reverse causality is unlikely to explain the result. In contrast, the relationship vanishes when using rumoured or announced but not completed integration events. Firms experience a substantial drop in sales when one of their suppliers integrates with one of their competitors. This sales drop is mitigated if the firm has alternative suppliers in place. |
| Keywords: | mergers and acquisitions, market foreclosure, vertical integration, production networks |
| JEL: | L14 L42 |
| Date: | 2019–08 |
| URL: | http://d.repec.org/n?u=RePEc:cep:cepdps:dp1641&r=all |
| By: | Heipertz, Jonas; Ouazad, Amine; Rancière, Romain |
| Abstract: | The paper uses bank- and instrument-level data on asset holdings and liabilities to identify and estimate a general equilibrium model of trade in financial instruments. Bilateral ties are formed as each bank selects the size and the diversification of its assets and liabilities. Shocks propagate due to the response, rather than the size, of bilateral ties to such shocks. This general equilibrium propagation of shocks reveals a financial network where the strength of a tie is determined by the sensitivity of an instrument's return to other instruments' returns. General equilibrium analysis predicts the propagation of real, financial and policy shocks. The network's shape adjusts endogenously in response to shocks, to either amplify or mitigate partial equilibrium shocks. The network exhibits key theoretical properties: (i) more connected networks lead to less amplification of partial equilibrium shocks, (ii)Â the influence of a bank's equity is independent of the size of its holdings; (ii) more risk-averse banks are more diversified, lowering their own volatility but increasing their influence on other banks. The general equilibrium based network model is structurally estimated on disaggregated data for the universe of French banks. We used the estimated network to assess the effects of ECB quantitative easing policy on asset prices, balance-sheets, individual bank distress risk, and networks systemicness. |
| Keywords: | Asset and Liability Management; Asset Trade; Endogenous Networks; General Equilibrium |
| JEL: | D4 D5 D85 E5 G12 |
| Date: | 2019–07 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:13855&r=all |
| By: | Sida Peng |
| Abstract: | This paper proposes a new method to identify leaders and followers in a network. Prior works use spatial autoregression models (SARs) which implicitly assume that each individual in the network has the same peer effects on others. Mechanically, they conclude the key player in the network to be the one with the highest centrality. However, when some individuals are more influential than others, centrality may fail to be a good measure. I develop a model that allows for individual-specific endogenous effects and propose a two-stage LASSO procedure to identify influential individuals in a network. Under an assumption of sparsity: only a subset of individuals (which can increase with sample size n) is influential, I show that my 2SLSS estimator for individual-specific endogenous effects is consistent and achieves asymptotic normality. I also develop robust inference including uniformly valid confidence intervals. These results also carry through to scenarios where the influential individuals are not sparse. I extend the analysis to allow for multiple types of connections (multiple networks), and I show how to use the sparse group LASSO to detect which of the multiple connection types is more influential. Simulation evidence shows that my estimator has good finite sample performance. I further apply my method to the data in Banerjee et al. (2013) and my proposed procedure is able to identify leaders and effective networks. |
| Date: | 2019–08 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1908.00663&r=all |
| By: | Mallaburn, David (Bank of England); Roberts-Sklar, Matt (Bank of England); Silvestri, Laura (Bank of England) |
| Abstract: | We study the network structure and resilience of the sterling investment-grade and high-yield corporate bond markets. Using proprietary, transaction-level data, first we analyse the key properties of the trading networks in these markets. We find that the trading networks exhibit a core-periphery structure where a large number of non-dealers trade with a small number of dealers. Consistent with dealer behaviour in the primary market, we find that trading activity is particularly concentrated for newly issued bonds, where the top three dealers account for 45% of trading volume. Second, we test the resilience of these markets to the failure or paralysis of a key dealer, or to bond rating downgrades. We find that whilst the network structure has been broadly stable and the market broadly resilient around bond downgrades over our 2012–2017 sample period, the reliance on a small number of participants makes the trading network somewhat fragile to the withdrawal of a few key dealers from the market. |
| Keywords: | Corporate bond market; financial networks |
| JEL: | G10 G20 |
| Date: | 2019–08–02 |
| URL: | http://d.repec.org/n?u=RePEc:boe:boeewp:0813&r=all |
| By: | Flueckiger, Matthias; Hornung, Erik; Larch, Mario; Ludwig, Markus; Mees, Allard |
| Abstract: | We show that the creation of the first integrated pan-European transport network during Roman times influences economic integration over two millennia. Drawing on spatially highly disaggregated data on excavated Roman ceramics, we document that interregional trade was strongly influenced by connectivity within the network. Today, these connectivity differentials continue to influence cross-regional firm investment behaviour. Continuity is largely explained by selective infrastructure routing and cultural integration due to bilateral convergence in preferences and values. Both plausibly arise from network-induced history of repeated socio-economic interaction. We show that our results are Roman-connectivity specific and do not reflect pre-existing patterns of exchange. |
| Keywords: | business links; cultural similarity; economic integration; Roman trade; transport network connectivity |
| JEL: | F15 F21 N73 O18 R12 R40 |
| Date: | 2019–07 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:13838&r=all |