quantitative analysis of network externalities in competing technologies the vcr case we develop a dynamic structural model of consumers choices and producers pricing in an oligopolistic market for newly introduced durable products with network externalities the model is then applied to empirically analyze the de facto standardization of the vhs format in the u s home vcr market during 1981 1988 we find i the network advantage of vhs explains at least 70 3 to 86 8 of the logarithm of relative sales of vhs to betamax in each year ii an increase in the network advantage of vhs was an engine of tipping toward the vhs format and iii in the early 1980s the network advantage of vhs was mainly due to its expected growth advantage

tipping and concentration in markets with indirect network effects this paper develops a framework for measuring tipping the increase in a firm s market share dominance caused by indirect network effects our measure compares the expected concentration in a market to the hypothetical expected concentration that would arise in the absence of indirect network effects in practice this measure requires a model that can predict the counterfactual market concentration under different parameter values capturing the strength of indirect network effects we build such a model for the case of dynamic standards competition in a market characterized by the classic hardware software paradigm to demonstrate its applicability we calibrate it using demand estimates and other data from the 32 64 bit generation of video game consoles a canonical example of standards competition with indirect network effects in our example we find that indirect network effects can lead to a strong economically significant increase in market concentration we also find important roles for beliefs on both the demand side as consumers tend to pick the product they expect to win the standards war and on the supply side as firms engage in penetration pricing to invest in growing their networks

optimal electricity market for wind power abstract this paper is about electricity market operation when looking from the wind power producers point of view the focus in on market time horizons how many hours there is between the closing and delivering the bids the case is for the nordic countries the nordpool electricity market and the danish wind power production real data from year 2001 was used to study the benefits of a more flexible market to wind power producer as a result of reduced regulating market costs from better hourly predictions to the market wind power producer would gain up to 8 more if the time between market bids and delivery was shortened from the day ahead elspot market hourly bids by noon for 12 36 h ahead an after sales market where surplus or deficit production could be traded 2 h before delivery could benefit the producer almost as much gaining 7

increasing the capital income tax may lead to faster growth this paper shows that under rather mild conditions higher capital income taxes lead to faster growth in an overlapping generations economy with endogenous growth government expenditures are financed with labor income taxes as well as capital income taxes since capital income accrues to the old taxing it reliefs the tax burden on the young and leaves them with more income out of which to save we argue that savings are sufficiently interest inelastic so that higher savings and therefore higher growth result the basic argument is not seriously challenged by a grandfather clause for initial capital or by the old receiving some labor income as well the reasoning is similar to feldstein 1978 auerbach 1979 and in particular jones and manuelli 1992 but in contrast to the conventional wisdom about the effect of capital income taxation as say in lucas 1990

collateral effects of liberalisation metering losses load profiles and cost settlement in spain s electricity system european energy markets have undergone a major transformation as they have advanced towards market liberalisation and it is vital that the details of these developments be carefully examined the success of liberalisation is based on smart regulation which has been capable of providing solutions to unforeseen events in the process our paper seeks to contribute to existing understanding of the unexpected and collateral effects of the liberalisation process in the power system by examining a natural experiment that occurred in spain in 2009 in that year the electricity supply by distribution system operators disappeared this change in retail market competition as we demonstrate in this paper has had an unexpected effect in terms of the system s balancing requirements we undertake a rigorous assessment of the economic consequences of this policy change for the whole system in terms of its impact on final electricity prices

optimal taxation in models of endogenous growth we study the problem of optimal taxation in three infinite horizon representative agent endogenous growth models the first model is a convex model in which physical and human capital are perfectly symmetric our second model incorporates elastic labor supply through a lucas style technology analysis of these two models points out the danger of assuming that government expenditures are exogenous in our third model we include government expenditures as a productive input in capital formation showing that the limiting tax rate on capital is no longer zero in numerical simulations we find similar effects on growth and welfare in all three models

installed base and compatibility innovation product preannouncements and predation a good is often more valuable to any user the more others use compatible goods the authors show that this effect may inhibit innovation if an installed base exists and transition to a new standard must be gradual early adopters bear a disproportionate share of transient incompatibility costs this can produce excess inertia the installed base however is stranded if the new standard is adopted this may create excess momentum these dynamic effects have strategic implications temporary price cutting can permanently prevent entry and product preannouncements can be critical in innovation these strategic actions have ambiguous welfare effects

hedonic price indexes for spreadsheets and an empirical test for network externalities in this article i first estimate hedonic price equations for computer spreadsheet programs and then use the analysis to empirically test whether network externalities exist in this industry the study shows that consumers are willing to pay a significant premium for spreadsheets that are compatible with the lotus platform and for spreadsheets that offer links to external databases and a similar premium for spreadsheets that offer local area network externalities finally the quality adjusted real price of computer spreadsheets declined by approximately 15 per year from 1986 to 1991

diffusion of a new product under network effects the us dvd market we formulate a model that captures the inter dependence between hardware demand and software supply indirect network effect in the dvd industry the identification of the network effect comes from the difference in software availability across two different formats vhs and dvd we find that a 1 increase in the number of dvd titles raises the demand for dvd players by 0 87 simultaneously a 1 increase in video player ownership leads to a 0 14 increase in the variety of video titles our simulations show that hardware manufacturers might be able to internalize the network externality to increase total industry revenues

on the taxation of human and physical capital in models of endogenous growth abstract this paper studies the effects of factor income taxation and of subsidies to human capital accumulation in models of endogenous growth it examines in particular how these effects depend on the specification of the leisure activity and on the technology and tax treatment of the sector producing human capital it shows that the negative effects of factor income taxes on economic growth are stronger when the human capital sector is a market good under these circumstances a subsidy to human capital accumulation can offset the direct growth effects of labor taxation making it akin to a consumption tax the paper then briefly discusses the normative implications of the analysis for the optimal taxation of factor incomes

dynamic optimal taxation in small open economies abstract this paper examines the effects of perfect capital mobility on the determination of optimal capital taxation it shows that capital movements do not change dramatically the optimal tax path studied for the closed economy in addition the paper provides a counterexample to the standard belief that the worldwide system is the optimal regime of taxation finally it shows that the rate of taxation of the rest of the world is not fundamental to determine the optimal decision of a small economy

effects of large scale penetration of renewables the italian case in the years 2008 2015 abstract italy has experienced a revolution in the electricity production mix in the years 2008 2015 when a large scale deployment of intermittent renewables caused a high volatility of electricity prices stopped the investments in both fossil and renewable power plants and caused a high degree of uncertainty in matching electricity demand and supply the current legislation gives renewable energy the priority of dispatchment producing a significant decrease of the operational hours of all kinds of power plants which caused economic problems to utilities that had started investments in new high efficiency combined cycles before 2008 and reduced the overall efficiency of fossil fired power generation in order to restore the opportunities for further investments in renewable energy systems it is very important to develop long term policies and interventions to improve the capacity to balance the electricity demand and supply

the effect of content on global internet adoption and the global digital divide a country s human capital and economic productivity increasingly depend on the internet as a result of its expanding role in providing information and communications this has prompted a search for ways to increase internet adoption and narrow its disparity across countries the global digital divide previous work has focused on demographic economic and infrastructure determinants of internet access that are difficult to change in the short run internet content increases adoption and can be changed more quickly however the magnitude of its impact and therefore its effectiveness as a policy and strategy tool has until now been unknown quantifying the role of content is challenging because of feedback network effects between content and adoption more content stimulates adoption which in turn increases the incentive to create content we develop a methodology to overcome this endogeneity problem we find a statistically and economically significant effect implying that policies promoting content creation can substantially increase adoption because it is ubiquitous internet content is also useful to effect social change across countries content has a greater effect on adoption in countries with more disparate languages making it a useful tool to overcome linguistic isolation our results offer guidance for policymakers on country characteristics that influence adoption s responsiveness to content and for internet firms on where to expand internationally and how to quantify content investments this paper was accepted by lorin hitt information systems

competition between networks a study of the market for yellow pages this paper estimates the importance of network effects in the market for yellow pages i estimate three simultaneous equations consumer demand for usage of a directory advertiser demand for advertising and a publisher s first order condition derived from profit maximizing behaviour estimation shows that advertisers value consumer usage and that consumers value advertising implying a network effect i find that internalizing network effects would significantly increase surplus as an application i consider whether the market benefits from monopoly which takes advantage of network effects or oligopoly which reduces market power i find that a more competitive market is preferable copyright 2004 wiley blackwell

finite lifetimes and growth abstract in this paper we study the long run growth property of overlapping generations models it is shown that in one sector models with convex technologies the asymptotic growth rate must be zero this results because the young do not have sufficient income to purchase a large capital stock thus a policy of income redistribution to the young can generate growth even if financed by income taxation additionaly it is shown that two sector models and one sector models with nonconvex technologies are consistent with growth

dynamics of pricing in the video game console market skimming or penetration abstract nintendo lost its dominant position in the video game industry during the console war between its nintendo 64 and sony s playstation however nintendo could have made several different strategic decisions to change the outcome this article develops a structural model and investigates these alternative strategies through policy simulations in particular the author provides a framework to study firms optimal pricing strategies under network effects consumer heterogeneity and oligopolistic competition consumer heterogeneity provides an incentive for a durable goods manufacturer to price skim while network effects lead to an opposite motive for penetration pricing the proposed framework incorporates these two competing motives under oligopolistic competition the author estimates a demand system that allows for indirect network effects and consumer heterogeneity and then numerically solves for the markov perfect equilibrium in firms dynamic pricing game policy simulations indicate that ni

the impact of regulatory quality and corruption on residential electricity prices in the context of electricity market reforms abstract the european electricity markets have been undergoing significant regulatory reforms since the introduction of the first liberalisation directive in 1996 theory predicts that liberalisation promotes cost efficient production and competition and hence leads to lower prices the goal of this paper is to assess the impact of regulatory quality and non compliance with the law on electricity prices in the context of electricity market reforms we address problems of endogeneity by using the blundell blond system gmm estimator and find that vertical integration and market concentration lower end user prices all else equal moreover improving regulatory quality and reducing corruption both have a negative impact on prices when holding other factors constant the intensity of the reforms has limited impact on electricity prices when these reforms are introduced in an institutional environment characterised by high levels of corruption and low quality regulation

technology adoption in the presence of network externalities we analyze technology adoption in industries where network externalities are significant the pattern of adoption depends on whether technologies are sponsored a sponsor is an entity that has property rights to the technology and hence is willing to make investments to promote it key findings include the following 1 compatibility tends to be undersupplied by the market but excessive standardization can occur 2 in the absence of sponsors the technology superior today has a strategic advantage and is likely to dominate the market 3 when one of two rival technologies is sponsored that technology has a strategic advantage and may be adopted even if it is inferior 4 when two competing technologies both are sponsored the technology that will be superior tomorrow has a strategic advantage

factor income taxation and growth under asymmetric information abstract this paper studies the growth effects of factor income taxation on capital and labor in an endogenous growth model with overlapping generations capital accumulation in our model takes place through credit financed investments in a market with asymmetric information between lenders and borrowers we show that in the presence of asymmetric information capital income taxation worsens the adverse selection problem in the credit market which in turn introduces an additional adverse effect on growth in so doing our analysis provides a new argument in favor of a lower higher capital labor income taxation in funding public expenditures

balancing power and variable renewables three links abstract balancing power is used to quickly restore the supply demand balance in power systems the need for this tends to be increased by the use of variable renewable energy sources vre such as wind and solar power this paper reviews three channels through which vre and balancing systems interact the impact of vre forecast errors on balancing reserve requirements the supply of balancing services by vre generators and the incentives to improve forecasting provided by imbalance charges the paper reviews the literature provides stylized facts from german market data and suggests policy options surprisingly while german wind and solar capacity has tripled since 2008 balancing reserves have been reduced by 15 and costs by 50

a review of balancing costs in italy before and after res introduction abstract the massive introduction of res in electricity markets is recognized to have induced a merit order effect on wholesale prices while day ahead prices are likely to decline as res e production increases the effects on balancing market sessions are more ambiguous taking into account the northern italian zone characterized by a high solar pv and hydro penetration we provide empirical evidence that balancing quantities decreased while costs increased between two samples associated with low 2006 08 and high 2013 15 res levels we estimate balancing costs for different technologies and compare their dynamics across specific hours we find evidence of increasing balancing prices in particular market conditions that we interpret as a signal of strategic use of real time sessions by conventional producers prone to the merit order effect in the day ahead market we compare our results to those obtained in the german market where on the contrary balancing costs have decreased and postulate that the different market designs may explain these results our findings suggest that the italian policy makers should carefully monitor all trading sessions especially those close to real time to avoid the exercise of market power by few operators allowed to guarantee system security and additionally to promptly adopt a capacity market

the economics of networks a survey of the empirical literature network effects the increase in value of consuming a product if many other consumers use the same product are a feature of many markets and in particular of many high technology products this paper surveys the burgeoning empirical literature that has developed especially during the last years after theoretical work dominated the earlier years of research in this area newer research has combined theoretical models with empirical studies and applied work with direct implications for public policy marketing and company strategies furthermore insights from the study of social networks have been applied to analyse how consumers interact with each other the paper argues that a closer analysis of the network structure of consumer interaction promises fruitful future research avenues and advances in our understanding of how network effects operate copyright 2009 blackwell publishing ltd

analysis of the imbalance price scheme in the spanish electricity market a wind power test case this work investigates the interaction between wind power and electricity markets the paper is focused on balancing markets pricing policies the proposal of a new imbalance price scheme is included and conveniently evaluated this proposed scheme tries to minimise the use of ancillary services to compensate for deviations in searching for a more efficient market design the effectiveness of imbalance prices as market signals is also examined and policy recommendations regarding imbalance services are discussed two test cases are included that analyse the participation of a wind power producer in the spanish electricity market using a stochastic optimisation strategy for this purpose the uncertainty of the variables is considered i e wind power production and prediction intraday and imbalance prices test cases were run with real data for 10 months and realistic results are presented along with a hypothetical test case the regulation of the imbalance prices may not be adequate for the spanish electricity market because an error drop is not sufficiently encouraged therefore we suggest the application of a new imbalance price scheme which includes an additional constraint the conclusions of this paper can be assumed to be general policy recommendations

growth effects of taxation under altruism and low elasticity of intertemporal substitution an increase in the tax rate on capital income may raise the rate of economic growth when the elasticity of intertemporal substitution is low and intergenerational transfers are absent since the strength of the bequest motive depends on tax rates this paper provides conditions under which taxing capital income and then reducing the labour income tax is more growth enhancing than the classical policy of zero taxes on capital income and vice versa this paper analyses the effects of different taxes on the rate of economic growth we consider an economy in which public spending is a fixed fraction of the gnp and the government can obtain revenues from proportional taxes on both labour and capital income obviously the growth effects of these two instruments will depend on the assumptions made about the economic environment in the standard overlapping generations olg model with production diamond 1965 an increase in capital income taxes allows a reduction in labour income taxes and thus agents will enjoy more income when they are young since in the olg model young agents must purchase the total stock of capital installed in the next period and saving is increasing in young income higher taxes on capital income may lead to faster capital accumulation in order to complete the argument we must ensure that the associated decrease in the after tax interest rate does not lead to a reduction in saving which would outweigh the previous income effect in other words we need a sufficiently low elasticity of intertemporal substitution the argument is thus similar to the one of jones and manuelli 1992 who have already pointed out that if the technological environment makes sustained growth feasible then taxing the old agents and subsidising the young ones may increase the rate of economic growth however the situation is completely different if we consider instead an economic environment in which the life cycle considerations are absent for instance in endogenous growth models with a representative agent or dynasty and infinite life span an increase in the capital income tax rate typically translates into lower growth see for instance sato 1967 feldstein 1974 stiglitz 1978 and the more recent contributions of lucas 1990 and rebelo 1991 a way to give a unified treatment to these two alternative models is by means

dynamics of consumer demand for new durable goods most new consumer durable goods experience rapid prices declines and quality improvements suggesting the importance of modeling dynamics this paper specifies a dynamic model of consumer preferences for new durable goods with persistently heterogeneous consumer tastes rational expectations and repeat purchases over time we estimate the model on the digital camcorder industry using panel data on prices sales and characteristics we find that the 1 year elasticity in response to a transitory industrywide price shock is about 25 percent less than the 1 month elasticity standard cost of living indices overstate welfare gain in later periods due to a changing composition of buyers

optimal taxation of capital income in general equilibrium with infinite lives this paper analyzes the optimal tax on capital income in general equilibrium models of the second best agents have infinite lives and utility functions which are extensions from the koopmans form the population is heterogeneous the important property of the models is the equality between the social and the private discount rates in the long run i find that the optimal tax rate is zero in the long run for a special case of additively separable utility functions i then determine the tax rates along the dynamic path and conditions that are sufficient for the local stability of the steady state

hardware quality vs network size in the home video game industry abstract this paper analyzes competition between multiple proprietary and incompatible hardware systems when indirect network effects are present and software is provided competitively by third party developers a discrete choice demand structure is employed within a game theoretic setting to allow for a continuum of market share possibilities empirical evidence supports the claim that excess inertia is not a pervasive problem two data sets covering the life of the home video game industry yearly from 1976 to 2003 and monthly january 1995 to october 2007 yield three main results 1 market share is 11 4 times more sensitive to hardware quality than network size 2 the number of available games is 3 69 times more sensitive to hardware quality than network size and 3 hardware quality has a larger impact than network size on the probability of hardware success

factor income taxation and growth with increasing integration of world capital markets abstract in a closed economy the infinite horizon and the overlapping generations og model prescribe diametrically opposite policies on factor taxation the former argues that the growth maximizing capital income tax rate should be set to zero whereas the latter argues that it should be set as high as possible this note investigates the issue by taking into account global capital market integration we show that the long run growth maximizing capital income tax rate in a small open og economy is decreasing as the economy s capital market is increasingly integrated with the rest of the world and will be equal to zero as prescribed in the infinite horizon model once the degree of integration becomes sufficiently high

systems competition and network effects this paper discusses firm behavior market performance and the public and private institutions that arise in systems markets i e markets where consumers use compatible components together to generate benefits in such markets which include communications networks and hardware software networks popular products are inherently more valuable these network effects can drive corporate strategies and are critical in understanding innovation in many high technology markets the discussion here emphasizes the dynamics of consumer adoption decisions in the presence of network effects competition between incompatible systems and how suppliers choose which components are compatible and which are not