Network Economics

This paper suggests that the economic growth of countries reflects their developmental potential which, in turn, is a function of the technological systems in which various economic agents participate. The boundaries of technological systems may or may not coincide with national borders and may vary from one techno-industrial area to another. The central features of technological systems are economic competence (the ability to develop and exploit new business opportunities), clustering of resources, and institutional infrastructure. A technological system is defined as a dynamic network of agents interacting in a specific economic/industrial area under a particular institutional infrastructure and involved in the generation, diffusion, and utilization of technology. Technological systems are defined in terms of knowledge/competence flows rather than flows of ordinary goods and services. In the presence of an entrepreneur and sufficient critical mass, such networks can be transformed into development blocks, i.e. synergistic clusters of firms and technologies which give rise to new business opportunities.

Economic scholarship has recently focused a great deal of attention on the phenomenon of network externalities, or network effects: markets in which the value that consumers place on a good increases as others buy the good. Though the economic theory of network effects is less than fifteen years old, and is still not thoroughly understood, network effects are increasingly playing a role in legal argument. Judges, litigators, and scholars have suggested that antitrust law, intellectual property law, telecommunications law, Internet law, corporate law, and contract law need to be modified to take account of network effects. Their arguments reflect a wide range of views about what network effects are and how courts should react to them. In this Article, we explore the application of network economic theory in each of these contexts. We suggest ways in which particular legal rules should-and should not-be modified to take account of network effects. We also attempt to draw some general conclusions about the role of network economic the- * ory in the legal enterprise and about the way in which courts should revise legal doctrines in response to theories from fields outside the law.

A recent literature, dealing with special markets characterized by bilateral network externalities, is summarized and critically assessed. Specific features of these markets, in terms of pricing principles and externalities, are discussed first. Afterwards, several issues related to competition between platforms are considered. Finally, implications for competition policy and prospects for future research are briefly discussed.

We present an economic experiment on network formation, in which subjects can decide to form links to one another. Direct links are costly but being connected is valuable. The gametheoretic basis for our experiment is the model of Bala and Goyal (2000). They distinguish between two scenarios regarding the flow of benefits through a network, the so-called 1-way and 2-way flow model. Our main results show that the prediction based on Nash and strict Nash equilibrium works well in the 1-way flow model but fails largely in the 2-way flow model. We observe a strong learning dynamic in the 1-way flow model but less so in the 2-way flow model. Finally, costs of a direct link have a positive impact on the occurrence of (strict) Nash networks in the 1-way flow model but a negative impact in the 2-way flow model. In our discussion on possible explanations for these results we focus on strategic asymmetry and asymmetry with respect to payoffs. We find that the latter asymmetry, i.e., payoff inequity, plays an important role in the network formation process.

We introduce a general framework for models of cascade and contagion processes on networks, to identify their commonalities and differences. In particular, models of social and financial cascades, as well as the fiber bundle model, the voter model, and models of epidemic spreading are recovered as special cases. To unify their description, we define the net fragility of a node, which is the difference between its fragility and the threshold that determines its failure. Nodes fail if their net fragility grows above zero and their failure increases the fragility of neighbouring nodes, thus possibly triggering a cascade. In this framework, we identify three classes depending on the way the fragility of a node is increased by the failure of a neighbour. At the microscopic level, we illustrate with specific examples how the failure spreading pattern varies with the node triggering the cascade, depending on its position in the network and its degree. At the macroscopic level, systemic risk is measured as the final fraction of failed nodes, X * , and for each of the three classes we derive a recursive equation to compute its value. The phase diagram of X * as a function of the initial conditions, thus allows for a prediction of the systemic risk as well as a comparison of the three different model classes. We could identify which model class leads to a first-order phase transition in systemic risk, i.e. situations where small changes in the initial conditions determine a global failure. Eventually, we generalize our framework to encompass stochastic contagion models. This indicates the potential for further generalizations. PACS. 64.60.aq Networks -89.65.Gh Economics; econophysics, financial markets, business and management -87.23.Ge Dynamics of social systems -62.20.M-Structural failure of materials

The recent worldwide trend towards devolution in the port industry has spawned considerable variety in the types of governance structures now in place around the world. This paper discusses the range of devolution alternatives adopted in the global ports sector, as identified by the World Bank and academic researchers. It then examines the Canadian model more closely as it attempts to follow a more novel path, that of the not-for-profit organization.

We design an incentive mechanism based on all-pay
auctions for participatory sensing. The organizer (principal) aims
to attract a high amount of contribution from participating users
(agents) while at the same time lowering his payout, which we
formulate as a profit-maximization problem. We use a contribution-
dependent prize function in an environment that is specifically
tailored to participatory sensing, namely incomplete information
(with information asymmetry), risk-averse agents, and stochastic
population. We derive the optimal prize function that induces
the maximum profit for the principal, while satisfying strict
individual rationality (i.e., strictly have incentive to participate at
equilibrium) for both risk-neutral and weakly risk-averse agents.
The thus induced profit is demonstrated to be higher than the
maximum profit induced by constant (yet optimized) prize. We
also show that our results are readily extensible to cases of
risk-neutral agents and deterministic populations.

In this article, we construct a model to study competing payment networks, where networks offer differentiated products in terms of benefits to consumers and merchants. We study market equilibria for a variety of market structures: duopolistic competition and cartel, symmetric and asymmetric networks, and alternative assumptions about multihoming and consumer preferences. We find that competition unambiguously increases consumer and merchant welfare. We extend this analysis to competition among payment networks providing different payment instruments and find similar results.

This paper develops a game theoretic model based on a two-sided market framework to investigate net neutrality from a pricing perspective. In particular, we consider investment incentives of Internet Service Providers (ISPs) under both a neutral and non-neutral network regimes. In our model, two interconnected ISPs compete over quality and prices for heterogenous Content Providers (CPs) and heterogeneous consumers. In the neutral regime, connecting to a single ISP allows a CP to gain access to all consumers. Instead, in the non-neutral regime, a CP must pay access fees to each ISP separately to get access to its consumers. Hence, in the non-neutral regime, an ISP has a monopoly over the access to its consumer base. Our results show that ISPs' quality-investment levels are driven by the trade-off they make between softening price competition on the consumer side and increasing revenues extracted from CPs. Specifically, in the non-neutral regime, because it is easier to extract surplus through appropriate CP pricing, ISPs' investment levels are larger. Because CPs' quality is enhanced by ISPs' quality, larger investment levels imply that CPs' profits increase. Similarly, consumer surplus increases as well. Overall, under the assumptions of our model, social welfare is larger in the non-neutral regime. Our results highlight important mechanisms related to ISPs' investments that play a key role in market outcomes, providing useful insights for the net neutrality debate.

How do illegal markets grow and develop? Using unique transactionlevel data on 7,205 market actors and 16,847 illegal drug exchanges on a "darknet" drug market, the authors evaluate the network processes that shape online illegal drug trade and promote the growth of online illegal drug markets. Contrary to past research on online markets, the authors argue that the high-risk context of illegal trade enhances market actors' reliance on social relationships that emerge endogenously from transaction networks. The findings reveal a highly structured trade network characterized by dense clustering and frequent recurrent drug exchange. Dynamic network models reveal that both embeddedness and closure in exchange structure increase the hazard rate of illegal drug trade, with effect sizes comparable to formal reputations. These effects are pronounced in the early stages of market development but wane once the market reaches maturity. These findings demonstrate the powerful, temporally contingent, influence of transaction networks on illegal trade in online markets and reveal how endogenous networks of economic relations can promote risky exchange under conditions of relative anonymity and illegality. Governments play a key role in market development. States define the type of products for sale as well as the rules governing exchange. Markets also rely on

We survey the limited data that exists concerning the cost of making/receiving a payment by banks, retailers, and other parties to a transaction. Since an electronic payment costs between one-third and onehalf that of a paper-based instrument, a country may save 1% of its GDP annually as it shifts from a fully paper-based to a fully electronic-based payment system. Some

Local interactions and network structures appear to be a prominent feature of many environmental problems. This paper discusses a wide range of issues and potential areas of application, including the role of relational networks in the pattern of adoption of green technologies, common pool resource problems characterized by a multiplicity of sources, the role of social networks in multi-level environmental governance, infrastructural networks in the access to and use of natural resources such as oil and natural gas, the use of networks to describe the internal structure of inter-country relations in international agreements, and the formation of bilateral “links” in the process of building up an environmental coalition. For each of these areas, we examine why and how network economics would be an effective conceptual and analytical tool, and discuss the main insights that we can foresee.

Can indirect network effects lead to adoption externalities? If so, when? In this paper we show that in markets where consumption benefits arise from hardware/software systems, adoption externalities will occur when there are (i) increasing returns to scale in the production of software, (ii) free-entry in software, and (iii) consumers have a preference for software variety. The private benefit of the marginal hardware purchaser is less than the social benefit since the marginal hardware purchaser does not internalize the welfare improving response of the software industry, particularly the increase in software variety, on inframarginal purchasers when the market for hardware expands.

There is no academic consensus on which electricity market design provides the least distorting investment incentives. Theory suggests that "energy-only markets" can allow capacity cost recovery by generators. However, separate payments for capacity or reserve obligations do not need to rely on infrequent price spikes to remunerate reserve capacity. Three years after the controversial change from the compulsory British Electricity Pool with capacity payments to the decentralised energyonly New Electricity Trading Arrangements (NETA), we contrast the two market designs in terms of investment incentives, analyse NETA's balancing market failures, and review the case for regulatory support for investment.

The No Surcharge Rule (NSR) prevents merchants from charging more to consumers who pay by card versus other means (“cash”). We consider a payment network facing local monopolist merchants that serve two consumer groups, card users and cash users. Unlike in prior ...

The freight railways sector has three attributes that have proved problematic for recent experiments with vertical separation: a) a relatively high share of network costs in total delivered service costs, b) an apparent persistence of economies of scale at the "competitive" train operations level, and, perhaps most important, c) strong economies of vertical integration that are focused on the interface point of wheel and rail – that is, exactly where vertical separation takes place. The third factor in particular seems a clear illustration of the rationales discussed by Coase and Williamson for the broad vertical scope of a single firm and the disadvantages of relying on market transactions under certain conditions.

H ow are business schools thinking about developing leaders for the emerging digital economy? Is there a set of core principles we can apply to thinking about the enabling potential of information technologies and their consequences for business and society? We present a business-centric framework and a technologycentric framework that together form a blueprint for answering these questions. The business-centric framework articulates three compelling reasons why information technology (IT) matters in business: (1) IT continually transform industry and society, (2) executive decisions about IT investments, governance, and strategy are critical to organizational success, and (3) deriving value from increasingly available data trails defines effective decision making in the digital economy. However, our conversations with the leadership of 45 business schools and our subsequent data indicate that business schools are challenged by effectively training future executives to think about these reasons and act on them as part of a forward-looking program of business education that is grounded in stable concepts. In response, the technology-centric framework provides a set of grounding concepts and stable principles about IT that have emerged over the last four decades, and leads to a natural set of consequences that can inform thinking about IT in business. We illustrate how these complementary frameworks-business and technology-can be combined to frame an educational program by outlining a set of key questions, by placing these questions in the context suggested by our frameworks, and by providing guidelines toward answering them. These questions also define a natural path for future research about IT in business and society that will lead to stronger intellectual foundations for the field and define future education that is better grounded in concepts and theories that emerge from academic research.

This article develops the Fado, a unique folk music form, as a cultural metaphor for Portugal. This process illustrates the value of the metaphoric methodology as a means to deepen understanding of national cultures. Findings yield three major insights. First, the Fado metaphor provides a rich illustration of the Portuguese cultural mindset, embraced
by the population as an enduring representation of national identity. Second, the Fado metaphor enables us to incorporate cultural characteristics represented by several traditional dimensions frameworks to elucidate our understanding of significant cultural factors. Third,
the cultural metaphor method breaks through the constraints imposed by dimensional research and enables us to understand intra-cultural variations in attitudes, behaviors, and values. Particularly, the identification of cultural paradoxes constitutes a major contribution
of this work. Paradoxes described here capture the dialectic nature of Portuguese culture in the areas of Fatalism and Perseverance; Large Power Distance and Equality; Uncertainty Avoidance and Risk-Taking; Group Orientation and Isolation; and Private and Shared Space.

With the aid of a lab experiment, we explored how imperfect monitoring and punishment
networks impacted appropriation, punishment and beliefs in a common pool resource
appropriation dilemma. We studied the differences between the complete network (with
perfect monitoring and punishment, in which everyone can observe and punish everyone
else) and two ‘imperfect’ networks (that systematically reduce the number of subjects who
could monitor and punish others): the directed and undirected circle networks. We found
that free riders were punished in all treatments, but the network topology impacted the type
of punishment: the undirected circle induced more severe punishment and prosocial punishment
compared to the other two networks. Both imperfect networks were more efficient
because the larger punishment capacity available in the complete network elicited higher
punishment amount.

We address whether local ISPs should be allowed to charge content providers, who derive advertising revenue, for the right to access end-users. We compare two-sided pricing where such charges are allowed to one-sided pricing where they are prohibited. By deriving provider equilibrium actions (prices and investments), we determine which regime is welfare-superior as a function of a few key parameters. We find that two-sided pricing is more favorable when the ratio between parameters characterizing advertising rates and end-user price sensitivity is either low or high.

Animal (and human) societies characterized by dominance hierarchies invariably suffer from inequality. The rise of inequality has 3 main prerequisites: 1) a group in which inequality can emerge, 2) the existence of differences in payoff, and 3) a mechanism that initiates, accumulates, and propagates the differences. Hitherto, 2 kinds of models have been used to study the processes involved. In winner-loser models of inequality (typical in zoology), the 3 elements are independent. In division-of-labor models of inequality, the first 2 elements are linked, whereas the third is independent. In this article, we propose a new model, that of synchronized group action, in which all 3 elements are linked. Under these conditions, agent-based simulations of communal action in multilayered communities naturally give rise to endogenous status, emergent social stratification, and the rise of elite cliques. We show that our 3 emergent social phenomena (status, stratification, and elite formation) react to natural variations in merit (the capacity to influence others' decisions). We also show that the group-level efficiency and inequality consequences of these emergent phenomena define a space for social institutions that optimize efficiency gain in some fitness-related respect, while controlling the loss of efficiency and equality in other respects.

In this paper we test the celebrated 'Strength of weak ties' theory of . We test two hypotheses on the network structure in a data set of collaborating economists. While we find support for the hypothesis of transitivity of strong ties, we reject the hypothesis that weak ties reduce distance more than strong ties do. We relate this surprising result to two different views of society. Whereas the classical view has been that society consists of different communities with strong ties within communities and weak ties between, the community of economic researchers has an interlinked star structure with strong ties between the stars. In such a world, strong ties are more important than weak ties.

U sing agent-based simulation experiments, we investigate the outcome of SAs between two smaller online search engine companies in competition with a dominant market leader in settings where an advertiser's decision making is the consequence of a combination of NI (e.g., an individual's willingness to follow others' decisions) and IP. In particular, we focus on a context in which the combined search engine company competes with a market leader holding a larger share of the market than the two runner-up "underdogs" combined.

This paper deals with railway deregulation and related reforms by means of a case study of Sweden, studying the 1988 split of railway infrastructure from operations and the subsequent steps of vertical and horizontal disintegration to a market characterized by decentralization and intra-modal competition. We also analyze the current market situation, in terms of the actors and their roles, and industrial organization measures. This assessment is used to discuss the sustainability of the current regulatory structure, concluding that although it seems more sustainable than in the past, regulators will sooner or later have to deal with some of its inconsistencies.

The goal of SEPA (Single Euro Payments Area) is to facilitate the emergence of a competitive, intra-European market by making cross-border payments as easy as domestic transactions. With crossborder inter-operability for electronic payments, card transactions will increasingly replace cash and checks for all types of payments. Using different methods, we estimate card and other payment network scale economies for Europe. These indicate substantial cost efficiency gains if processing is consolidated across borders rather than "piggybacked" onto existing national operations. Cost reductions likely to induce greater replacement of small value cash transactions are also illustrated.

This paper revises some of the common views on transport infrastructure investment and proposes alternative ways to achieve a more efficient planning, evaluation and financing of transport infrastructures in a world where planners may pursue their own interests, there exist different levels of government, and budget constraints are pervasive. We focus on the need for public planning and independent economic evaluation, and the importance of deciding the pricing scheme in the planning phase. We also discuss the institutional design and its effect on investment decisions, particularly, the financing of projects under different levels of government and its perverse consequences on infrastructure capacity choices. We use as an example the development of the HSR to serve medium-distance trips in corridors where air transport is a very close substitute.

Mobile money schemes have grown rapidly in some developing countries but failed in many more. This paper reports the results of an empirical study of mobile money schemes in 22 developing countries chosen based on prior evidence to include roughly equal numbers of successes and failures. It uses a combination of quantitative and qualitative evidence to determine why some countries succeeded in launching mobile money schemes and others failed. The analysis is guided by multi-sided platform economics and in particular recent work on the role of ignition and critical mass. We found that of the 22 countries, mobile money schemes have grown rapidly in 8; mobile money schemes have grown but not rapidly in 3; and mobile money schemes have largely failed to take hold in 8. (It is still too soon for us to make a call in 2 countries and there are no bases to determine ignition for 1 country.) Based on a detailed investigation into the similarities and differences between these countries and across the categories we reached several key findings. The first finding is the most robust and important. (1) Heavy regulation, and in particular an insistence that banks play a central role in the schemes, together with burdensome KYC and agent restrictions, is generally fatal to igniting mobile money schemes. (2) Mobile money schemes have been more likely to succeed in poorer countries that lack basic infrastructure. (3) The growth of the send-receive and the cash-in/cash-out platforms must go hand in hand. (4) Ignition and explosive growth occurs quickly or not at all.

In this paper, we provide the economic rationale for an important issue in the health care sector, namely the network formation, e.g., in The Netherlands. The presence of such cooperation structures is hard to explain using the basic concept of the economic organization (EO) theory, i.e., the dichotomy of hierarchy versus market. However, acknowledging the aspect of trust renders the clan concept to be a powerful tool in understanding the viability of intra-and inter-organizational cooperation in the health sector. The main reason for this is the manner in which the professionals involved perform, as well as the importance of the tacit knowledge of the actors employed in the various health institutions.

We examine the evidence available on the efficacy of demand-side programs intended to stimulate broadband adoption. We review studies that attempt to measure results. Our suggestions for future program evaluations are to include cost-benefit analysis as a standard part of program review and to make clear that the purpose of evaluation is to assess progress made toward the ultimate policy goals rather than the program's proximate implementation goals. Appropriate data must be collected to draw conclusions, and appropriate statistical methods must be used to determine the causal impacts of a program. This has rarely been done to date.

In this paper, we consider oligopolistic firms with supply chain networks who are involved in the production, storage, and distribution of a homogeneous product to demand markets and explore what has become known in the literature as the "merger paradox." We present the oligopolistic supply chain network equilibrium model associated with the competing firms before the horizontal mergers and also develop the supply chain network optimization model post the complete merger. In addition, we develop the model in which only a subset of the firms in the industry merge. The governing concept of the competing firms is that of Cournot-Nash equilibrium. We utilize finite-dimensional variational inequality theory for the formulation, analysis, and solution of both the pre and the post-merger supply chain network problems. We provide numerical examples for which we compute the total costs, the total revenues, as well as the profits obtained for the firms pre and post the mergers for a variety of distinct oligopoly problems. The generality of the network models and the flexibility of the computational approach, which yields closed form expressions for the product flows at each iteration, allows us to obtain deeper insights into the merger paradox.

This article explains a simulation of the Co-Author Model (CAM) applied in strategic alliance setting where firms use and optimize their network resources. To understand its process casualty better, I explain the model's mechanisms in terms of its interactive dynamics and resulting equilibrium structure. Classified as a Boolean network with two inputs, CAM's dynamics cause a biased equilibrium structure that could then be explained by the Simmelian tie and the completion of structure through structural balance. These explanations not only could answer the criticism that a simulation model is merely a toy model without much realism but could also explain and give insights to both substantive theory and methodology development in strategic alliance research. The results include the effect of a third party, the embeddedness of firms in their alliances, and the real-world implications of the "frozen web": a phenomenon drawn parallel to the financial crisis beginning in 2007.

We investigate the effects of various quality attributes and network-specific features on the price of word processing software using a hedonic price framework in order to assess the effect of the network variable on the quality-adjusted price. We find a positive effect of network externalities on price in this market that is similar to markets for spreadsheet and web server software as shown previously (Brynjolfsson and Kemerer [E. Brynjolfsson, and C. Kemerer Network externalities in microcomputer software: an econometric analysis of the spreadsheet market, unpublished draft, MIT Sloan School of Management, (1997)]; Gallaugher and Wang [J.M. Gallaugher and Y. Wang, Understanding network effect in software markets: evidence from web server pricing, MIS Quarterly 26 (4), (Dec. 2002), 303–327]; Gandal [N. Gandal, Hedonic price indexes for spreadsheets and an empirical test for network externalities, Rand Journal of Economics 25 (1) (Spring 1994)]). As observed in other software pricing studies, we find strong brand effects among word processors. However, quality attributes do not significantly impact price in this market. This is contrary to the evidence from studies of spreadsheet software. Furthermore, in contrast to the evidence from spreadsheets, prices adjusted for quality show an upward trend over time in the market for word processing software.

Economic reasons along with cultural affinities and the existence of networks have been the main determinants explaining migration flows between home and host countries. This paper reconsiders these approaches combined with the gravity model and empirically tests the hypothesis that ex-colonial links can still play an important role in the emigration decision. We employ a general linear mixed model, and apply it to the case of skilled, educated and talented Africans, who migrate to Fortress Europe over the period of 1990 to 2001. While we find some differences in the exodus of skilled Africans by sub-regions, the magnitude of the colonial vestige in Africa is a significant determinant of emigration flows. Overall, Portugal is preferred to the UK which is preferred more than Belgium, Germany and Italy. Brainy Africans are, however, indifferent between the UK, France and Spain as a destination country. Established immigrant networks and higher standards of living with job opportunities in the host country are also very important drivers of the emigration of brainy Africans to the European ex-colonial powers.

In Germany, competitive franchising is increasingly being used to procure passenger railway services that were previously provided by a state monopolist. This paper analyzes 77 tenders that differ with respect to network size, service frequency, contract duration and the proximity to other lines that are already run by competitors of DB Regio, a subsidiary of the successor of the former state monopolist. Our analysis shows that competitors are more likely to win small networks and more recent auctions. Other controls such as contract duration and the adjacency to other lines run by entrants are insignificant.

This paper describes the procedures established by the present regulation for high-tension network expansions, studies its optimality and points its main problems. According to the present regulatory scheme, the decision to expand the high-tension network system is on the hands of the private sector. A simple model of the Argentine electricity system and its regulation allowed the simulation of cases in which the present "Public Contest" method could result in the rejection of socially desirable projects and the acceptance of undesirable ones. Some of the reasons for the existence of wrong incentives to investment are found and changes to the mechanism are suggested.

This article presents a model for Internet portal management. The model allows portal implementers to monitor and reflect on their portal implementation process and to identify appropriate strategies to improve their community building efforts. The portal management model (PMM) is a lifecycle model that contains four stages. Each stage is identified and described by a number of characteristics and an associated existential crisis. Each crisis must be addressed for the portal to remain in business but it must be overcome to move on to the next -more advanced -stage. Four competitive strategies are presented as effective for steering the portal through each of the stages. At the initial stage, the new portal should seek to be the unavoidable pesky little brother and seek to imitate the older established portals. At the second stage the appropriate strategy is for the portal to gain strength through marriage rather than staying single -called the battle of the sexes strategy. At the third stage it is time to take firm control over the portal community. Here open confrontation is unavoidable as in the fairytale of Tweedledum and Tweedledee. At the fourth and final stage, the established portal must ceaselessly monitor the market for new contestants and counter them.

The payment cards market is a two-sided market. Cost sensitivity of both consumers and merchants for card services influences total demand. Survey data of Dutch merchants shows that costs, and competition affect acceptance as well as surcharging decisions. Merchants who find payment cards expensive are less likely to accept them and more likely to surcharge their customers for using them. Merchants who face any competition accept debit card payments relatively more often than merchants with monopoly power, and they are less likely to surcharge their customers for debit card usage.

ABSTRACT In this study we examine the role that financial considerations play in influencing investment patterns within a network industry. Specifically, we evaluate the effects of lower access prices (the costs of connectivity) and cross-subsidization on investments in technology to expand the bandwidth provided by local exchange carriers in the United States. Lower access prices and greater cross-subsidization increase cash flow, and the availability of additional financial resources can be an important determinant of firms’ investment strategies. We examine investments by firms in Integrated Services Digital Network (ISDN) technology, the initial technology that enabled the firms we studied to increase their bandwidth and provide their customers with greater access to the Internet. Using data from 1994 to 1998, we found that lower access prices and cross-subsidization played key roles in increasing cash flow, which in turn facilitated investment in the new ISDN technology. This phenomenon has implications for both corporate strategy and public policy affecting investment in new technologies.

Liner shipping has been characterized by collusive agreements, called shipping conferences, since its founding in the mid-nineteenth century. This article surveys the competing models of shipping conferences, including monopolizing cartels and destructive competition models, and reviews a variety of their practices to see how much light they can shed on the profitability and efficiency of conferences.

Cooperative games model the allocation of profit from joint actions, following considerations such as stability and fairness. We propose the reliability extension of such games, where agents may fail to participate in the game. In the reliability extension, each agent only "survives" with a certain probability, and a coalition's value is the probability that its surviving members would be a winning coalition in the base game. We study prominent solution concepts in such games, showing how to approximate the Shapley value and how to compute the core in games with few agent types. We also show that applying the reliability extension may stabilize the game, making the core non-empty even when the base game has an empty core.

The protection of financial personal data has become a major concern for Internet users in the digital economy. This paper investigates whether the consumers’ use of non-bank payment instruments that preserve financial privacy from banks and relatives may increase their online purchases. We analyze the purchasing decisions and the use of bank and non-bank payment instruments of a representative sample of French Internet consumers in 2015. Using two econometric methods, namely a two-step regression and a Bayesian Markov Chain Monte Carlo model to account for a potential endogeneity problem, we find evidence that the use of a non-bank payment instrument positively influences consumers’ online purchases.

The wireless community networking paradigm shows great promise in achieving a global status. However, in creating a ''global wireless village'', both user participation and support from traditional Internet Service Providers (ISPs) are key ingredients; for this end a viable incentive system is essential. In this paper we investigate the economic interactions in global wireless community networks with regard to users, ISPs and community providers (called mediators) with both analysis and data-driven simulation. The main contribution of this paper is threefold. First, we develop a model of the global wireless community concept as a Stackelberg game of participation at two levels (the mediator as leader, and the users and ISPs as followers). Second, we analyze equilibrium properties of the game for users, ISPs and mediator. Our main finding is that the heterogeneity of user home location relevance is necessary for an economically feasible system. Third, we support our analytical claims with simulation results on the evolution of the user population. We show that the emergence of a truly global wireless community network is indeed possible.

The constructed hierarchical optimization model of vintage capital replacement takes into account network effects and the age-dependent technological structure of capital equipment. It involves the control of a network coalition choice, endogenous investments, capital structure, and capital lifetime. The qualitative analysis of the model shows how the lifetime and financial structure of the IT capital depends on technological change. These results are relevant for strategic management on a firm level. Provided numeric examples simulate the optimal lifetime of personal computers.

Power generation and transmission are complementary activities that must be coordinated to ensure an optimal use and development of the transmission network. This coordination is today more difficult in a liberalized system, because of unbundling and the freedom for investors to choose their generation technologies . Shorter investment time between generation and network create uncertainty for the network planning and congestions. In the economic literature, the efficiency of anticipating generation investment has been under-evaluated assuming that it is a cost free activity. Our model evaluates the effect of anticipation costs and defines in which cases the previous results by Oren (2006, 2007) could still hold.

The purpose of this paper is to compare the interaction between pricing and capacity decisions on simple serial and parallel transport networks. When individual links of the network are operated by different regional or national authorities, toll and capacity competition is likely to result. Moreover, the problem is potentially complicated by the presence of both local and transit demand on each link of the network. We bring together and extend the recent literature on the topic and, using both theory and numerical simulation techniques, provide a careful comparison of toll and capacity interaction on serial and parallel network structures. First, we show that there is more tax exporting in serial transport corridors than on competing parallel road networks. Second, the inability to toll transit has quite dramatic negative welfare effects on parallel networks. On the contrary, in serial transport corridors it may actually be undesirable to allow the tolling of transit at all. Third, if the links are exclusively used by transit transport, toll and capacity decisions are independent in serial networks. This does not generally hold in the presence of local transport. Moreover, it contrasts with a parallel setting where regional authorities compete for transit; in that case, regional investment in capacity leads to lower Nash equilibrium tolls.

The paper extends the tourist test proposed by Rochet and Tirole (2011) to the situation of emerging countries which are characterized by informality (tax evasion through cash payments). We introduce a government which faces a cost associated to cash (resources to fight against crime minus seigniorage) and tax evasion in the base model. The main idea is that merchants benefit from tax evasion since they do not provide a receipt in cash transactions and thus pocket a fraction of the VAT. In the presence of informality, the tax benefit of cash reduces the merchants’ net operating benefit of accepting card sales. The tourist test aims to determine a maximum interchange fee (the fee that the acquirer pays to the issuer whenever a card transaction is done) which makes the merchant indifferent between accepting cash or card. In this new environment, the tourist test threshold now internalizes this tax benefit of accepting cash. We assess the socially optimal interchange fees in this new m...