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on Network Economics |
| By: | Helmut Dietl (Institute for Strategy and Business Economics, University of Zurich); Tobias Duschl (Institute for Strategy and Business Economics, University of Zurich); Egon Franck (Institute for Strategy and Business Economics, University of Zurich); Markus Lang (Institute for Strategy and Business Economics, University of Zurich) |
| Abstract: | This paper develops a model of a professional sports league with network externalities by integrating the theory of two-sided markets into a contest model. In professional team sports, leagues function as a platform that enables sponsors to interact with fans. In these league-mediated interactions, positive network effects operate from the fan market to the sponsor market, while negative network effects operate from the sponsor market to the fan market. Clubs react to these network effects by charging higher (lower) prices to sponsors (fans). Our analysis shows that the size of these network effects determines the level of competitive balance within the league. Traditional models, which do not take network externalities into account, under- or overestimate the actual level of competitive balance, which may lead to wrong policy decisions. Moreover, we show that clubs benefit from stronger combined network effects through higher profits. Finally, we derive policy recommendations for improving competitive balance by taking advantage of network externalities. |
| Keywords: | Competitive balance, contest, multisided market, network externalities, team sports league |
| JEL: | L11 L13 L83 M21 |
| Date: | 2009–11 |
| URL: | http://d.repec.org/n?u=RePEc:spe:wpaper:0912&r=net |
| By: | Jiankui He; Michael W. Deem |
| Abstract: | We examine how the structure of the world trade network has been shaped by globalization and recessions over the last 40 years. We show that by treating the world trade network as an evolving system, theory predicts the trade network is more sensitive to evolutionary shocks and recovers more slowly from them now than it did 40 years ago, due to structural changes in the world trade network induced by globalization. We also show that recession-induced change to the world trade network leads to an \emph{increased} hierarchical structure of the global trade network for a few years after the recession. |
| Date: | 2010–10 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1010.0410&r=net |
| By: | Thomas P. Tangerås (Research Institute of Industrial Economics (IFN)) |
| Abstract: | I generalize the workhorse model of network competition (Armstrong, 1998; Laffont, Rey and Tirole, 1998a,b) to include income effects in call demand. Income effects imply that call demand depends also on the subscription fee, not only on the call price. In the standard case of differentiated networks, weak income effects are enough to deliver results in line with stylized facts: The networks have an incentive to agree on high mobile termination rates to soften competition. They charge a higher price for calls outside (off-net) than inside (on-net) the network. This vindicates the use of (a perturbation of) the workhorse model of network competition. |
| Keywords: | bill-and-keep, call price discrimination, network competition, non-linear prices, profit neutrality. |
| JEL: | L51 L96 |
| Date: | 2010–09 |
| URL: | http://d.repec.org/n?u=RePEc:net:wpaper:1005&r=net |
| By: | Chrysanthos Dellarocas (School of Management, Boston University); Zsolt Katona (Haas School of Business, University of California, Berkeley); William Rand (Robert H. Smith School of Business, University of Maryland) |
| Abstract: | A key property of the World Wide Web is the possibility for firms to place virtually costless links to third-party content as a substitute or complement to their own content. This ability to hyperlink has enabled new types of players, such as search engines and content aggregators, to successfully enter content ecosystems, attracting traffic and revenues by hosting links to the content of others. This, in turn, has sparked a heated controversy between content producers and aggregators regarding the legitimacy and social costs/benefits of uninhibited free linking. This work is the first to model the implications of interrelated and strategic hyper-linking and content investments. Our results provide a nuanced view of the much-touted Òlink economyÓ, highlighting both the beneficial consequences and the drawbacks of free hyperlinks for content producers and consumers. We show that content sites can reduce competition and improve profits by forming links to each other; in such networks one site makes high investments in content and other sites link to it. Interestingly, competitive dynamics often preclude the formation of link networks, even in settings where they would improve everyone's profits. Furthermore, such networks improve economic efficiency only when all members have similar abilities to produce content; otherwise the less capable nodes can free-ride on the content of the more capable nodes, reducing profits for the capable nodes as well as the average content quality available to consumers. Within these networks, aggregators have both positive and negative effects. By making it easier for consumers to access good quality content they increase the appeal of the entire content ecosystem relative to the alternatives. To the extent that this increases the total traffic flowing into the content ecosystem, aggregators can help increase the profits of the highest quality content sites. At the same time, however, the market entry of aggregators takes away some of the revenue that would otherwise go to pure content sites. Finally, by placing links to only a subset of available content, aggregators further increase competitive pressure on content sites. Interestingly, this can increase the likelihood that such sites will then attempt to alleviate the competitive pressure by forming link networks. |
| Keywords: | hyperlinks; content networks; content aggregators; strategic network formation. |
| JEL: | D83 D85 L14 O34 |
| Date: | 2010–09 |
| URL: | http://d.repec.org/n?u=RePEc:net:wpaper:1013&r=net |
| By: | Eyal Carmi (Tel Aviv University); Gal OEstreicher-Singer (Tel Aviv University); Arun Sundararajan (New York University) |
| Abstract: | We study the online contagion of exogenous demand shocks generated by book reviews featured on the Oprah Winfrey TV show and published in the New York Times, through the co-purchase recommendation network on Amazon.com. These exogenous events may ripple through and affect the demand for a “network” of related books that were not explicitly mentioned in a review but were located “close” to reviewed books in this network. Using a difference-in-differences matched-sample approach, we identify the extent of the variations caused by the visibility of the online network and distinguish this effect from variation caused by hidden product complementarities. Our results show that the demand shock diffuses to books that are up to five links away from the reviewed book, and that this diffused shock persists for a substantial number of days, although the depth and the magnitude of diffusion varies widely across books at the same network distance from the focal product. We then analyze how product characteristics, assortative mixing and local network structure, play a role in explaining this variation in the depth and persistence of the contagion. Specifically, more clustered local networks “trap” the diffused demand shocks and cause it to be more intense and of a greater duration but restrict the distance of its spread, while less clustered networks lead to wider contagion of a lower magnitude and duration. Our results provide new evidence of the interplay between a firm’s online and offline media strategies and we contribute methods for modeling and analyzing contagion in networks. |
| Keywords: | networks, product networks, electronic commerce, ecommerce, recommender systems, identification, exogenous shocks |
| JEL: | L11 L81 M31 |
| Date: | 2010–09 |
| URL: | http://d.repec.org/n?u=RePEc:net:wpaper:1018&r=net |
| By: | Bryony Reich (Department of Economics, University of Cambridge) |
| Abstract: | I develop a framework to explain why identity divides some communities and not others. An identity group is defined as a group of individuals with the same `culture'. A community is divided when different identities are socially segregated; a community is integrated when there is no social segregation between different identities. I find three possible outcomes for a community: assimilation, where groups socially integrate and one group conforms to the culture of another; non-assimilative integration, where groups integrate but individuals retain their own identity; and segregation, where groups socially segregate and retain their own culture. I find that certain community environments encourage segregation: (i) communities with similar sized identity groups; (ii) larger communities; (iii) communities with greater cultural distance between identities. Further, when segregation occurs, the cultural divide between the two groups can increase endogenously beyond ex-ante differences. |
| Keywords: | identity, culture, segregation, immigration, immigrants, networks, network formation, coordination, stochastic stability. |
| JEL: | J15 D85 D74 A14 C73 H00 |
| Date: | 2010–09 |
| URL: | http://d.repec.org/n?u=RePEc:net:wpaper:1010&r=net |
| By: | M. Lombardi; M. Macchi |
| Date: | 2010–09 |
| URL: | http://d.repec.org/n?u=RePEc:bol:prinwp:016&r=net |