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on Network Economics |
| By: | Sue Mialon; Samiran Banerjee |
| Abstract: | We provide a new model of platform competition on the Internet and analyze the effect of last-mile access charges on market outcomes. Consumers subscribe to two vertically related platforms, an Internet service provider (ISP) and a content network platform (CNP), to reach content providers (CPs). CPs interact with consumers via CNPs. Local ISPs provide an essential input: the internet connection for consumers and the last-mile access for the CNPs. The effects of access regulation that lowers the ISPs' last-mile access charges depend on (i) how much consumers value the network services, (ii) how much an increase in the Internet price lowers CNPs' fees from CPs, and (iii) the elasticities of consumer demand for the Internet with respect to price and network externality. When consumers' valuation of the network services is very high, the market for Internet connection is fully covered and access regulation unambiguously improves welfare since it lowers the fees for CPs without affecting consumer demand. When consumers' valuation is very low, access regulation does not have any impact because ISPs optimally set the access charge at zero. When consumers' valuation is moderate and the CNPs' fee reduction in response to a higher Internet price is large, access regulation lowers not only the fees from CPs but also consumer Internet prices. Hence, the "seasaw principle" between consumer Internet price and access charge breaks down in this case, and access regulation unambiguously improves welfare for consumers and CPs. On the other hand, if CNPs' fee adjustment is minimal, access regulation induces a higher consumer internet price and the welfare implication of access regulation is ambiguous. Access regulation improves welfare in this case if consumer demand responds more to the change in network externality than the change in price. |
| Date: | 2012–01 |
| URL: | http://d.repec.org/n?u=RePEc:emo:wp2003:1201&r=net |
| By: | Teruyoshi Kobayashi (Graduate School of Economics, Kobe University) |
| Abstract: | The question of how to stabilize financial systems has attracted considerable attention since the global financial crisis of 2007-2009. Recently, Beal et al. (gIndividual versus systemic risk and the regulator's dilemmah, Proc Natl Acad Sci USA 108: 12647-12652, 2011) demonstrated that higher portfolio diversity among banks would reduce systemic risk by decreasing the risk of simultaneous defaults at the expense of a higher likelihood of individual defaults. In practice, however, a bank default has an externality in that it undermines other banks' balance sheets. This paper explores how each of these different sources of risk, simultaneity risk and externality, contributes to systemic risk. The results show that the allocation of external assets that minimizes systemic risk varies with the topology of the financial network as long as asset returns have negative correlations. In the model, a well-known centrality measure, PageRank, reflects an appropriately defined ginfectivenessh of a bank. An important result is that the most infective bank need not always be the safest bank. Under certain circumstances, the most infective node should act as a firewall to prevent large collective defaults. The introduction of a counteractive portfolio structure will significantly reduce systemic risk. |
| Keywords: | Systemic risk, financial crisis, financial network, macro-prudential policy |
| JEL: | G18 |
| Date: | 2013–04 |
| URL: | http://d.repec.org/n?u=RePEc:koe:wpaper:1307&r=net |
| By: | Philipp Möhlmeier (Bielefeld University - BiGSEM, Center for Mathematical Economics); Agnieszka Rusinowska (Centre d'Economie de la Sorbonne - Paris School of Economics); Emily Tanimura (Centre d'Economie de la Sorbonne) |
| Abstract: | We develop a modification of the connections model by Jackson and Wolinsky (1996) that takes into account negative externalities arising from the connectivity of direct and indirect neighbors, thus combining aspects of the connections model and the co-author model. We consider a general functional form for agents' utility that incorporates both the effects of distance and of neighbors' degree. Consequently, we introduce a framework that can be seen as a degree-distance-based connections model with both negative and positive externalities. Our analysis shows how the introduction of negative externalities modifies certain results about stability and efficiency compared to the original connections model. In particular, we see the emergence of new stable structures, such as a star with links between peripheral nodes. We also identify structures, for example, certain disconnected networks, that are efficient in our model but which could not be efficient in the original connections model. While our results are proved for the general utility function, some of them are illustrated by using a specific functional form of the degree-distance-based utility. |
| Keywords: | Connections model, degree, distance, negative externalities, positive externalities, pairwise stability, efficiency. |
| JEL: | D85 C70 |
| Date: | 2013–04 |
| URL: | http://d.repec.org/n?u=RePEc:mse:cesdoc:13040&r=net |
| By: | Nizar Allouch (Queen Mary, University of London) |
| Abstract: | This paper investigates the private provision of public goods in segregated societies. While most research agrees that segregation undermines public provision, the findings are mixed for private provision: social interactions, being strong within groups and limited across groups, may either increase or impede voluntary contributions. Moreover, although efficiency concerns generally provide a rationale for government intervention, surprisingly, little light is shed in the literature on the potential effectiveness of such intervention in a segregated society. This paper first develops an index based on social interactions, which, roughly speaking, measures the welfare impact of income redistribution in an arbitrary society. It then shows that the proposed index vanishes when applied to large segregated societies, which suggests an "asymptotic neutrality" of redistributive policies. |
| Keywords: | Public goods, Segregated society, Private provision, Networks, Bonacich transfer index |
| JEL: | C72 D31 H41 |
| Date: | 2013–05 |
| URL: | http://d.repec.org/n?u=RePEc:qmw:qmwecw:wp703&r=net |