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on Network Economics |
| By: | Ángel L. López (IESE Business School); Patrick Rey (Toulouse School of Economics (IDEI and GREMAQ)) |
| Abstract: | This article analyzes competition between two asymmetric networks, an incumbent and a new entrant. Networks compete in non-linear tariffs and may charge different prices for on-net and off-net calls. Departing from cost-based access pricing allows the incumbent to foreclose the market in a profitable way. If the incumbent benefits from customer inertia, then it has an incentive to insist in the highest possible access markup even if access charges are reciprocal and even in the absence of actual switching costs. If instead the entrant benefits from customer activism, then foreclosure is profitable only when switching costs are large enough. |
| Keywords: | Access Pricing, Entry Deterrence, Interconnection, Network Competition, Two-way Access |
| JEL: | L41 L51 L96 |
| Date: | 2009–11 |
| URL: | http://d.repec.org/n?u=RePEc:fem:femwpa:2009.99&r=net |
| By: | Claudia Keser; Irina Suleymanova; Christian Wey |
| Abstract: | We analyze the choices between two technologies A and B that both exhibit network effects. We introduce a critical mass game in which coordination on either one of the standards constitutes a Nash equilibrium outcome while coordination on standard B is assumed to be payoff-dominant. We present a heuristic definition of a critical mass and show that the critical mass is inversely related to the mixed strategy equilibrium. We show that the critical mass is closely related to the risk dominance criterion, the global game theory, and the maximin criterion. We present experimental evidence that both the relative degree of payoff dominance and risk dominance explain players' choices. We finally show that users' adoption behavior induces firms to select a relatively unrisky technology which minimizes the problem of coordination failure to the benefit of consumers. |
| JEL: | C72 C91 D91 D84 |
| Date: | 2009 |
| URL: | http://d.repec.org/n?u=RePEc:diw:diwwpp:dp961&r=net |
| By: | Benno Bühler (Toulouse School of Economics (IDEI)) |
| Abstract: | We develop a model of international roaming in which mobile network operators (MNOs) compete both on the wholesale market to sell roaming services to foreign operators and on the retail market for subscribers. The operators own a network infrastructure only in their home country. To allow their subscribers to place or receive calls abroad, they have to buy roaming services provided by foreign MNOs. We show that in absence of international alliances and capacity restrictions, competition between foreign operators would drive wholesale unit prices down to marginal costs. However, operators prefer to form international alliances in which members mutually provide roaming services at inefficiently high wholesale prices. Alliances serve as a commitment device to soften competition on the retail market and harm consumers through excessively high per call prices. Although operators compete in two-part tariffs for subscribers, wholesale roaming prices do not exhibit profit-neutrality as do access prices in related models of net- work interconnection. We also show that international alliances are endogenously formed if not prevented by regulation. |
| Keywords: | International Roaming, Vertical Relations, Regulation |
| JEL: | D43 L13 L42 L96 |
| Date: | 2009–11 |
| URL: | http://d.repec.org/n?u=RePEc:fem:femwpa:2009.93&r=net |
| By: | Helmut Dietl (Institute for Strategy and Business Economics, University of Zurich); Tobias Duschl (Institute for Strategy and Business Economics, University of Zurich) |
| Abstract: | In this paper, we compare European and North-American sports leagues from the perspective of platform organization. We find that European leagues can be characterized as open, not only in the sense of promotion and relegation, but also in the sense of attenuated/dispersed property rights and free access on all market sides. North American leagues, on the other hand, are organized as closed platforms with exclusive/concentrated property rights and high entry barriers on all market sides. This difference explains why European clubs outperform their North American counterparts in terms of revenue generation, i.e. value creation, and why North American clubs are much more profitable than most European clubs. European leagues are organized as open platforms, which invite and facilitate participation from all relevant market sides. The absence of concentrated property rights and the possibility of free market entry, however, limit the opportunities of value appropriation. |
| Keywords: | Sports leagues, organization, platform, network effects |
| JEL: | L83 |
| Date: | 2009–12 |
| URL: | http://d.repec.org/n?u=RePEc:iso:wpaper:0119&r=net |
| By: | Dorothée Brécard (LEMNA - Laboratoire d'économie et de management de Nantes Atlantique - Université de Nantes : EA4272) |
| Abstract: | We examine the impact of a “green network effect” in a market characterized by consumers' environmental awareness and competition between firms in both environmental quality and product prices. The unique aspect of this model comes from the assumption that an increase in the number of consumers of the green product increases the satisfaction of each green consumer. We show that this externality raises the consumption of the green product, reduces the environmental quality of products and improves welfare, even if it doesn't affect the overall level of pollution. The externality correction requires using three optimal fiscal policies: an ad valorem tax on products, an emission tax, and a subsidy of the green purchase. A second-best optimum can also be reached through the green taxation. |
| Date: | 2009–12–23 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:hal-00442460_v1&r=net |
| By: | Fukunari Kimura |
| Abstract: | Production networks in East Asia, particularly being extended by machinery industries, have presented unprecedented development with their significance in economies in the region, their geographical extension, and their sophistication in combining intra-firm and arm's length transactions. In particular, the fragmentation of production activities together with the formation of industrial agglomerations in developing countries is a novel phenomenon that would lead to an East Asian model of economic development. Starting from a brief review of our conceptual framework based on the fragmentation theory as well as an empirical overview with international trade statistics and others, the paper presents a survey on empirical evidences that have been established by previous micro-data analyses in East Asia and discusses a list of empirical issues that future studies should explore. Topics include (i) the selection of exporters and investors, (ii) organizational structure and spatial design of production networks, (iii) location choice, (iv) impacts of outward FDI on developed countries, and (v) learning and impacts of inward FDI on LDCs. |
| Date: | 2009–12 |
| URL: | http://d.repec.org/n?u=RePEc:hst:ghsdps:gd09-093&r=net |
| By: | M. König; Claudio J. Tessone; Yves Zenou |
| Abstract: | In order to understand the different characteristics observed in real-world networks, one needs to analyze how and why networks form, the impact of network structure on agents' outcomes, and the evolution of networks over time. For this purpose, we combine a network game introduced by Ballester et al. [2006], where the Nash equilibrium action of each agent is proportional to her Bonacich centrality, with an endogenous network formation process. Links are formed on the basis of agents' centrality while the network is exposed to a volatile environment introducing interruptions in the connections between agents. A remarkable feature of our dynamic network formation process is that, at each period of time, the network is a nested split graph. This graph has very nice mathematical properties and are relatively easy to characterize. We show that there exists a unique stationary network (which is a nested split graph) whose topological properties completely match features exhibited by real-world networks. We also ï¬nd that there exists a sharp transition in efficiency and network density from highly centralized to decentralized networks. |
| Keywords: | Bonacich centrality, Network formation, Social interactions, Nested split graphs |
| JEL: | A14 C63 D85 |
| Date: | 2009–10–21 |
| URL: | http://d.repec.org/n?u=RePEc:stz:wpaper:ccss-09-00006&r=net |
| By: | de Marti, Joan (Universitat Pompeu Fabra); Zenou, Yves (Research Institute of Industrial Economics (IFN)) |
| Abstract: | We survey the literature on social networks by putting together the economics, sociological and physics/applied mathematics approaches, showing their similarities and differences. We expose, in particular, the two main ways of modeling network formation. While the physics/applied mathematics approach is capable of reproducing most observed networks, it does not explain why they emerge. On the contrary, the economics approach is very precise in explaining why networks emerge but does a poor job in matching real-world networks. We also analyze behaviors on networks, which take networks as given and focus on the impact of their structure on individuals’ outcomes. Using a game-theoretical framework, we then compare the results with those obtained in sociology. |
| Keywords: | Random Graph; Game Theory; Centrality Measures; Network Formation; Weak |
| JEL: | A14 C72 D85 Z13 |
| Date: | 2009–12–09 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:iuiwop:0816&r=net |
| By: | KONNO Tomohiko |
| Abstract: | Most growth theories have focused on R&D activities. Although R&D significantly influences economic growth, the spillover effect also has a considerable influence. In this paper, we study knowledge spillover among agents by representing it as network structures. The objective of this study is to construct a framework to treat knowledge spillover as a network. We introduce a knowledge spillover equation, solve it analytically to find a workable solution. It has mainly three properties: (1) the growth rate is common for all the agents only if they are linked to the entire network regardless of degrees, (2) the TFP level is proportional to degree, and (3) the growth rate is determined by the underlying network structure. We compare growth rate among representative networks: regular, random, and scale-free networks, and find the growth rate is the greatest in scale-free network. We apply this framework, i.e., knowledge spill over equation, to the problem of firms forming a network endogenously and show how distance and region size affect the economic growth. We also apply the framework to network formation mechanism. The aim of our paper is not just showing results, but in constructing a framework to study spillover by network. |
| Date: | 2010–01 |
| URL: | http://d.repec.org/n?u=RePEc:eti:dpaper:10002&r=net |