Networks, Crowds, and Markets

Networks, Crowds, and Markets
Author: David Easley
Publisher: Cambridge University Press
Total Pages: 745
Release: 2010-07-19
Genre: Computers
ISBN: 1139490303

Are all film stars linked to Kevin Bacon? Why do the stock markets rise and fall sharply on the strength of a vague rumour? How does gossip spread so quickly? Are we all related through six degrees of separation? There is a growing awareness of the complex networks that pervade modern society. We see them in the rapid growth of the internet, the ease of global communication, the swift spread of news and information, and in the way epidemics and financial crises develop with startling speed and intensity. This introductory book on the new science of networks takes an interdisciplinary approach, using economics, sociology, computing, information science and applied mathematics to address fundamental questions about the links that connect us, and the ways that our decisions can have consequences for others.

Essay on Network Effects, Consumer Demand, and Firms' Dynamic Pricing

Essay on Network Effects, Consumer Demand, and Firms' Dynamic Pricing
Author: Rong Luo
Publisher:
Total Pages:
Release: 2015
Genre:
ISBN:

This dissertation includes three chapters on estimating structural economics models. My research focuses on empirically study consumers' utility from different products, the impact of network effects on consumers' demand for products, and multi-network firms' dynamic pricing strategies. The three chapters share the same feature of estimating a discrete choice demand model, but differ in the static versus dynamic setting and the underlying economics question and strategic behaviors that I'm interested.Chapter 1"The Operating System Network Effect and Telecom Carriers' Dynamic Pricing of Smartphones."The utility a consumer realizes from owning a smartphone increases with its operating system (OS) network size. Due to this OS network effect, multi-network telecom carriers have a different pricing strategy for smartphones than the single- network manufacturers in a dynamic environment. While manufacturers choose higher prices for larger networks, carriers, who can internalize competition across OSs, have incentives to choose lower prices for larger networks. The carriers' pricing strategy contributes to the increasing smartphone users and OS concentration. In this paper, I first analyze a theoretical model to compare the pricing strategies of the carriers and manufacturers. Then I design a structural model of consumers' demand and the carriers' dynamic pricing game for smartphones, and empirically study the impact of the OS network effect and carriers' two-year contract policy on the smartphone market penetration and OS concentration. I estimate the model using product level data from August 2011 to July 2013 in the US. I deal with the empirical challenges of dynamic prices for multi-product carriers, high dimension continuous state variables, and asymmetric oligopolistic firms in the estimation. The results show that the OS network size has a positive and significant impact on consumer utility. I then study two counterfactual cases in which I eliminate the OS network effect and the carriers' pricing strategy, respectively. I find that, without the OS network effect, the smartphone penetration rate would decrease by 54.7% and the largest OS share difference decrease by 31.7% by May 2013. Without the carriers' pricing strategy, the penetration rate would decrease by 29.1% and the OS market share difference decrease by 11.2%.Chapter 2"The Operating System Network Effect and Consumers' Dynamic Demand of Smartphones with Two-Year Contracts."This paper studies consumers' dynamic demand of smartphones on two-year wireless contracts. Individuals' demand decisions are affected by the improving quality and changing prices of smartphones, and the OS network effect, and their current smartphone contract status. Consumers need to pay high early termination fees if they end active contracts. The dynamic demand model in this paper incorporates the evolving choice set, prices, endogenous OS network sizes, and the termination policies in the smartphone industry. The preliminary results find that the OS network effect is large and significant. In addition, compared with dynamic model results, a static demand model tends to underestimate the OS network effect and overestimate price coefficient.Chapter 3"Store Brands and Retail Grocery Competition in Breakfast Cereals."This paper empirically analyzes the impacts of store brands on grocery retailers and consumers in the market for breakfast cereals. On the supply side, store brands help a retailer to avoid direct competition with other retailers and change the set of retailer's products. On the demand side, introducing store brands changes the national brands prices and consumers' choice set. We analyze the effects via demand estimation for a single grocery store chain Dominick's at Chicago in 1997 and counterfactual exercises. The estimation results show that consumers' unobserved utility of buying at a competing retailer is higher for consumers that value national brands, and is lower for ones that value Dominick's store brands. This is consistent with the claim that store brands help a retailer to avoid competition. The counterfactual calculations show that the profit loss from removing store brands is higher if the retailer has more competitors, with a median loss of 4.33% of profits from cereals. Existence of store brands increases national brands prices and consumer welfare increases slightly when store brands are removed.

Handbook of Industrial Organization

Handbook of Industrial Organization
Author: Richard Schmalensee
Publisher: North Holland
Total Pages: 1002
Release: 1989-09-11
Genre: Business & Economics
ISBN:

Determinants of firm and market organization; Analysis of market behavior; Empirical methods and results; International issues and comparision; government intervention in the Marketplace.

Price Competition in Two-Sided Markets with Heterogeneous Consumers and Network Effects

Price Competition in Two-Sided Markets with Heterogeneous Consumers and Network Effects
Author: Lapo Filistrucchi
Publisher:
Total Pages: 52
Release: 2013
Genre:
ISBN:

We model a two-sided market with heterogeneous customers and two heterogeneous network effects. In our model, customers on each market side care differently about both the number and the type of customers on the other side. Examples of two-sided markets are online platforms or daily newspapers. In the latter case, for instance, readership demand depends on the amount and the type of advertisements. Also, advertising demand depends on the number of readers and the distribution of readers across demographic groups. There are feedback loops because advertising demand depends on the numbers of readers, which again depends on the amount of advertising, and so on. Due to the difficulty in dealing with such feedback loops when publishers set prices on both sides of the market, most of the literature has avoided models with Bertrand competition on both sides or has resorted to simplifying assumptions such as linear demands or the presence of only one network effect. We address this issue by first presenting intuitive sufficient conditions for demand on each side to be unique given prices on both sides. We then derive sufficient conditions for the existence and uniqueness of an equilibrium in prices. For merger analysis, or any other policy simulation in the context of competition policy, it is important that equilibria exist and are unique. Otherwise, one cannot predict prices or welfare effects after a merger or a policy change. The conditions are related to the own- and cross-price effects, as well as the strength of the own and cross network effects. We show that most functional forms used in empirical work, such as logit type demand functions, tend to satisfy these conditions for realistic values of the respective parameters. Finally, using data on the Dutch daily newspaper industry, we estimate a flexible model of demand which satisfies the above conditions and evaluate the effects of a hypothetical merger and study the effects of a shrinking market for offline newspapers.

Duopoly Competition with Network Effects in Discrete Choice Models

Duopoly Competition with Network Effects in Discrete Choice Models
Author: Ningyuan Chen
Publisher:
Total Pages: 90
Release: 2020
Genre:
ISBN:

We consider two firms selling products to a market of network-connected customers. Each firm is selling one product and the two products are substitutable. The customers make purchases based on the multinomial logit model and the firms compete for their purchasing probabilities. We characterize possible Nash equilibria for homogeneous network interactions and identical firms: when the network effects are weak, there is a symmetric equilibrium that the two firms evenly split the market; when the network effects are strong, there exist two asymmetric equilibria additionally, in which one firm dominates the market; interestingly, when the product quality is low and the network effects are neither too weak nor too strong, the resulting market equilibrium is never symmetric although the firms are ex ante symmetric. We extend these results along multiple directions. First, when the products have heterogeneous qualities, the firm selling inferior product can still retain market dominance in equilibrium due to the strong network effects. Second, when the network effects are heterogeneous, customers with higher social influences or larger price sensitivities are more likely to purchase either product in the symmetric equilibrium. Third, when the network consists of two communities, market segmentation may arise. Fourth, we extend to the dynamic game when the network effects build up over time to explain the first-mover advantage.

Dynamics, Games and Science II

Dynamics, Games and Science II
Author: Mauricio Matos Peixoto
Publisher: Springer Science & Business Media
Total Pages: 757
Release: 2011-05-27
Genre: Mathematics
ISBN: 3642147887

Dynamics, Games and Science I and II are a selection of surveys and research articles written by leading researchers in mathematics. The majority of the contributions are on dynamical systems and game theory, focusing either on fundamental and theoretical developments or on applications to modeling in biology, ecomonics, engineering, finances and psychology. The papers are based on talks given at the International Conference DYNA 2008, held in honor of Mauricio Peixoto and David Rand at the University of Braga, Portugal, on September 8-12, 2008. The aim of these volumes is to present cutting-edge research in these areas to encourage graduate students and researchers in mathematics and other fields to develop them further.

Dynamic Competition and Public Policy

Dynamic Competition and Public Policy
Author: Jerome Ellig
Publisher: Cambridge University Press
Total Pages: 298
Release: 2001-04-23
Genre: Business & Economics
ISBN: 9780521782500

Scholars explore antitrust issues as these relate to dynamic industry competition and public policy.

The Economics of Platforms

The Economics of Platforms
Author: Paul Belleflamme
Publisher: Cambridge University Press
Total Pages: 275
Release: 2021-11-11
Genre: Business & Economics
ISBN: 1108625622

Digital platforms controlled by Alibaba, Alphabet, Amazon, Facebook, Netflix, Tencent and Uber have transformed not only the ways we do business, but also the very nature of people's everyday lives. It is of vital importance that we understand the economic principles governing how these platforms operate. This book explains the driving forces behind any platform business with a focus on network effects. The authors use short case studies and real-world applications to explain key concepts such as how platforms manage network effects and which price and non-price strategies they choose. This self-contained text is the first to offer a systematic and formalized account of what platforms are and how they operate, concisely incorporating path-breaking insights in economics over the last twenty years.

How Do Switching Costs Affect Market Concentration and Prices in Network Industries?

How Do Switching Costs Affect Market Concentration and Prices in Network Industries?
Author: Jiawei Chen
Publisher:
Total Pages: 0
Release: 2016
Genre:
ISBN:

I investigate the effects of switching costs on the market outcome in network industries using a dynamic duopoly model of price competition in the presence of an outside option. I find that the role of switching costs depends on network effects and the outside option. Without a viable outside option, high switching costs can neutralize the tendency towards high market concentration associated with network effects, but with a viable outside option, switching costs increase market concentration. Furthermore, switching costs lower prices if network effects are modest and there exists a viable outside option, but generally raise prices otherwise.