regulatory reform in britain regulatory reform in britain john kay and john vickers major sectors of the british economy are currently undergoing far reaching regulatory reform deregulation removal of barriers to competition and the introduction of new methods of regulation are occurring notably in financial services some of the professions and in utility industries such as telecommunications gas and electricity this paper gives an economic assessment of these developments the authors examine the root causes of market failure that call for regulation externalities monopoly and information problems and the pros and cons of various regulatory responses a broad distinction is drawn between structural regulation the determination of which firms or types of firms can engage in which activities and conduct regulation the control of how firms behave in their chosen activities recent examples of deregulation plus re regulation in britain are seen in part as a shift from structural to conduct regulation the relative merits of the two modes of regulation are complex to assess but it is argued that some recent regulatory reforms are placing undue reliance on conduct regulation as well as assessing individual industries the authors draw general conclusions about the desirability of regulatory solutions that make full use of market forces

network externalities technological progress and the competition of market contracts abstract network externalities are used to describe the fact that many modern products become more valuable the more users adopt products of the same technology where network externalities and technological progress exist the various kinds of inefficiencies discussed in the recent literature can be explained by different types of contracts the main categories analysed are simple market contracts update contracts and service contracts it is shown that these types of contract emerge endogenously from the incentive structure of profit maximizing firms competition between these contracts may substantially reduce inefficient allocations caused by network externalities

competition and social influence the diffusion of the sixth generation processor in the global computer industry1 when is a social actor most strongly influenced by its peers this article addresses this question by clarifying when computer firms were most strongly affected by the choices of their structurally equivalent rivals to adopt a well known technology intel s sixth generation processor the core hypothesis is that the effect of adoptions by structurally equivalent firms increases with the competitive pressure that a focal firm faces in its market position the results show that a chosen firm is most strongly influenced by comparable others when it faces scale based competition and is diversified the implications of this study are twofold a social actor s sensitivity to the conduct of others may depend not only on its place in a hierarchy but also on the nature of its ties to an external audience and a contingent theory of social influence may be necessary to characterize diffusion processes correctly particularly when external and time varying nonnetwork factors have significant effects

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

tying and innovation a dynamic analysis of tying arrangements this paper analyses the effects of tying arrangements on r d incentives it shows that tying is a means through which a firm can commit to more aggressive r d investment in the tied goods market tying also has the strategic effect of reducing rivals incentives to invest in r d the strategy of tying is a profitable one if the gains via an increased share of dynamic rents in the tied goods market exceed the losses that result from intensified price competition in the market the welfare implications of tying and consequently the appropriate antitrust policy are discussed

competition for advertisers and for viewers in media markets standard models of advertising financed media assume consumers patronise a single media platform precluding effective competition for advertisers such competition ensues if consumers multi home the principle of incremental pricing implies that multi homing consumers are less valuable to platforms then entry of new platforms decreases advertisement prices while a merger increases them and advertisement financed platforms may suffer if a public broadcaster carries advertisements platforms may bias content against multi homing consumers especially if consumers highly value overlapping content and or second impressions have low value

build or buy strategies in the local loop we provide a dynamic model to study how the presence of the option to buy the incumbent local exchange carrier s ilec facilities via local loop unbundling affects the competitive local exchange carriers clecs incentives to build alternative infrastructures we show that an unregulated incumbent sets a rental path for its local loop which delays technology adoption compared to the case in which there is no unbundling we also characterize the equilibrium rental path set by the unregulated incumbent it is prohibitively high at the initial phases when there is no effective threat of entry with alternative technologies and it is decreasing over time in later phases the decrease in the rental price follows the rise of the entrant s opportunity cost of leasing lines we also argue that neither allowing higher prices for unbundled elements over time nor setting a sunset clause would suffice to induce facility based competition by studying the unregulated ilecs decision regarding unbundling we challenge the implicit assumption behind the sunset clauses which is that the ilec would either deny unbundling or charge too high a price for its network elements in the absence of regulation we claim that the ilecs that initially resist unbundling requirements would tend to charge attractive access prices relative to the entrants alternatives for their infrastructure which become less essential over time this abstract was borrowed from another version of this item

the pricing of options on assets with stochastic volatilities one option pricing problem that has hitherto been unsolved is the pricing of a european call on an asset that has a stochastic volatility this paper examines this problem the option price is determined in series form for the case in which the stochastic volatility is independent of the stock price numerical solutions are also produced for the case in which the volatility is correlated with the stock price it is found that the black scholes price frequently overprices options and that the degree of overpricing increases with the time to maturity one option pricing problem that has hitherto remained unsolved is the pricing of a european call on a stock that has a stochastic volatility from the work of merton 12 garman 6 and cox ingersoll and ross 3 the differential equation that the option must satisfy is known the solution of this differential equation is independent of risk preferences if a the volatility is a traded asset or b the volatility is uncorrelated with aggregate consumption if either of these conditions holds the risk neutral valuation arguments of cox and ross 4 can be used in a straightfoward way this paper produces a solution in series form for the situation in which the stock price is instantaneously uncorrelated with the volatility we do not assume that the volatility is a traded asset also a constant correlation between the instantaneous rate of change of the volatility and the rate of change of aggregate consumption can be accommodated the option price is lower than the blackscholes b s 1 price when the option is close to being at the money and higher when it is deep in or deep out of the money the exercise prices for which overpricing by b s takes place are within about ten percent of the security price this is the range of exercise prices over which most option trading takes place so we may in general expect the b s price to overprice options this effect is exaggerated as the time to maturity increases one of the most surprising implications of this is that if the b s equation is used to determine the implied volatility of a near the money option the longer the time to maturity the lower the implied volatility numerical solutions for the case in which the volatility is correlated with the stock price are also examined the stochastic volatility problem has been examined by merton 13 geske 7 johnson 10 johnson and shanno 11 eisenberg 5 wiggins 16 and

promoting network competition by regulating termination charges abstract this paper contributes to the policy debate about the optimal termination charge when penetration rates are explicitly taken into account although lowering termination charges towards cost leads to more efficient usage its impact on consumer surplus is ambiguous since it induces an increase in fixed subscription fee through the so called waterbed effect we show that a reduction in termination charge below cost has two opposing effects on consumer surplus it softens competition but also helps to internalize network externalities hence it can decrease or increase penetration depending on whether or not the first effect dominates the second we show that the first effect dominates the second when networks are weak substitutes or the penetration rate is high

finite sample properties of the arch class of models with stochastic volatility abstract this paper shows that arch type models provide adequate estimates of conditional volatility when the data are generated under stochastic volatility under reasonable scenarios arch estimates out perform method of moments and quasi maximum likelihood estimators of the true model 1997 elsevier science s a

state and standards in this paper a new economic approach to standardization has been presented standardization has been regarded as a problem ofgradual choice an individual chooses to apply more or less standards within a hierarchy of standards with this decomposition of standards the problem of strategic market power becomes less important than in the traditional models of standardization it becomes possible to analyze the problems of network externalities within a framework of non strategic behavior and to apply the tools of the traditional theory of externalities and public goods while decentralized action may lead to too little standardization committees may overcome this deficiency to some extent but bureaucracies are likely to lead to overstandardization in the empirical section of the paper it has been shown that our approach can be applied to the standard setting process in languages railroads and telecommunications in all three cases the tendency of bureaucracies to generate more standardization than committees has been corroborated

interconnectivity of communications networks and international trade in this study a multi country model of trade is developed that captures the role of country specific communications network interconnectivity which enhances trade in intermediate business services the number of countries connected to inter nationally interconnected networks is found to determine the structure of comparative advantage that is countries with interconnected networks have a comparative advan tage in the good that requires business services provided via networks in connected countries producers of that good benefit from the efficient transmission of business services this research also demonstrates that countries whose country specific net works are not connected to the interconnected networks may become worse off as the

network externalities discrete demand shifts and submarginal cost pricing the introduction of a new product often causes a massive discrete demand shift to the new product this study demonstrates that if a large scale demand shift to a new product is accompanied by network externalities it may result in submarginal cost pricing by which the seller sets its price below the marginal cost this finding casts new light on dumping and safeguard issues in the real world jel classification d42 externalites de reseaux deplacements discrets de la demande et tarification en deca du cout marginal l introduction d un nouveau produit engendre souvent un deplacement massif discret de la demande vers le nouveau produit cette etude montre que si un tel deplacement de la demande est accompagne d externalites de reseaux il peut s ensuivre une tarification en deca du cout marginal ou le vendeur fixe son prix en dessous du cout marginal ce resultat jette une lumiere nouvelle sur les problemes de dumping et de protection dans le monde reel

policies and international trade agreements on technical compatibility for industries with network externalities abstract the paper considers a country home in which consumers have heterogeneous preferences over ex ante incompatible domestic and imported products and benefit from a network externality we analyze the cases with trade under perfect competition and the international duopoly in which both governments strategically use policies toward compatibility but cannot use conventional trade policies in both cases the equilibrium outcome of the non cooperative game depends upon the strength of the network externality effect and involves either an excessively high equilibrium level of compatibility in combination with either too much or too little trade or very low equilibrium levels of both compatibility and trade the paper concludes with the analysis of the international agreements on policies toward compatibility and evaluates the existing provisions in the wto legal system aimed at minimizing the trade inhibiting impact of standards and regulations in the area of technical compatibility

optimal bundling of technological products with network externality for many high tech and internet related products utility to consumers depends in part on the size of the user base a phenomenon called network externality a firm with a portfolio of these and other products that are often asymmetric in their degree of network externality or marginal cost may have to look beyond the traditional strategies of pure components pure bundling and mixed bundling one such strategic alternative in a two product case would be a so called mixed bundling 1 under which the bundle and product 1 are offered but the other product can only be purchased in a bundled form the purpose of this study is to compare and contrast the impact of such asymmetry or symmetry in direct network externality and cost on the choice of bundling strategies we model a monopolist firm that has a product in each of two categories and faces heterogeneous consumers results suggest that pure bundling is more profitable when both products have low marginal costs or high network externality whereas pure components or mixed bundling 1 is more profitable when the products diverge in their costs and network externality e g only one product has network externality traditional mixed bundling is optimal in other instances

attack defence and contagion in networks sanjeev goyal acknowledges support from a keynes fellowship cambridge inet institute and european research area complexity net resilience and interaction of networks in ecology and economics adrien vigier acknowledges support from a gates cambridge fellowship as well as a core fellowship from universite catholique de louvain

modularity in technology and organization this paper is an attempt to raid both the literature on modular design and the literature on property rights to create the outlines of a modularity theory of the firm such a theory will look at firms and other organizations in terms of the partitioning of rights understood as protected spheres of authority among cooperating parties and it will assert that organizations reflect nonmodular structures that is structures in which decision rights rights of alienation and residual claims to income do not all reside in the same hands 2002 elsevier science b v all rights reserved

the initiation and termination of enduring rivalries the impact of political shocks theory breaking the stability of interstate conflictual relationships requires a dramatic change in the environment of those relationships hypotheses the beginning and end of enduring rivalries are closely related to the timing of large political shocks in the form of world wars territorial changes alterations in the international power distribution civil wars and national independences methods descriptive statistics on timing of enduring rivalry initiation and termination vis a vis political shocks supplemented by event history analysis results political shocks were found to be a modest necessary condition for the initiation and termination of enduring rivalries with the strongest impact from world wars civil wars and national independences

political regimes and the extractive capacity of governments taxation in democracies and dictatorships recent political and economic transformations in latin america africa asia and eastern europe have brought about a renewed interest in the incentives and capabilities of different types of political regimes to implement policies that are deemed necessary for economic development in particular policies aimed at increasing tax revenue one central question is whether democracies can collect as much in taxes as dictatorships this article addresses this question by examining whether regime type classified as democracy or dictatorship has a causal impact on a government s capacity to mobilize resources through taxation on the basis of data gathered for 108 countries for the period between 1970 and 1990 the article concludes that observed differences across countries regarding the level of taxes collected by the government are not due to the fact that some are under a democracy and others under a dictatorship concerns about the inability of democratic regimes to collect taxes are therefore unfounded

sources procedures and microeconomic effects of innovation fabio arcangeli paul david frank engelman christopher freeman massimo moggi richard nelson luigi orsenigo nathan rosenberg michele salvati g n von tunzelman two anonymous referees and the participants at the meeting of the committee on distribution growth and technical progress of the italian national research council cnr rome november 16 1985 have helped with various redraftings a particularly grateful acknowledgment is for the insightful and patient help of moses abramovitz this work has been undertaken at the science policy research unit spru university of sussex as part of the research program of the designated research centre sponsored by the economic and social research council esrc earlier support to the research that led to this paper by the italian national research council cnr is also gratefully acknowledged the statistical research has been undertaken with the assistance of stephano brioschi ilaria fornari and giovannu prennushi

price competition and compatibility in the presence of positive demand externalities in many cases the benefit to a consumer of a product increases with the number of other users of the same product these demand interdependencies are referred to in the literature as positive demand externalities or network externalities this paper examines the dynamic pricing behaviors of an incumbent and a later entrant with special attention to the impacts of demand externalities compatibility and competition on prices and profits defining market power as the ability to price above a competitor without losing market share we show how demand externalities and installed base combine to confer market power we model optimal pricing as a differential game with the optimal price trajectory established as nash open loop controls for a duopoly durable goods market with strong demand externalities the results show an increasing price trajectory can be optimal as expected a new entrant is better off if its products are compatible with those of the incumbent especially when demand externalities are strong and the installed base of the incumbent is large less intuitively the incumbent as well may be better off agreeing on common standards the comparison of monopoly and duopoly shows that under strong demand externalities and a small installed base the incumbent profits from compatible entry

shared atm networks and banking competition abstract in this paper we study the incentives of banks to share their automatic teller machines atms when they are competitors in the market for deposits we construct a stylized model of banking competition which emphasises the distinctive features of atm compatibility we find that in equilibrium either a strict subset of banks share their atms or total incompatibility prevails we also derive the implications for atm compatibility of withdrawal fees interchange bank fees entry and depositor switching costs finally we investigate the normative implications of our model and draw some policy conclusions

business to business bargaining in two sided markets abstract bargaining regularly takes place on the business to business side of two sided markets however little is known about the consequences of these negotiations in this paper we allow the platform or a policy maker to choose between a standard design offering posted prices to both sides or a design with bargaining offering a posted price to consumers and negotiating with at least some firms we find that the platform pursues negotiations when it has a strong bargaining position and does so by targeting firms with the largest network effects while this behavior may appear exploitive we show that profits and welfare often align across platform designs this alignment stems from how bargaining incentivizes the platform greater platform bargaining power allows the platform to extract more of the network surpluses since it can convert more of the firm surplus into profits and this incentivizes the platform to draw in greater participation generating greater welfare these results suggest that platform and policy maker preferences often align in this setting

digital piracy a competitive analysis in recent years the issue of copyright protection for intellectual properties such as computer software music cds and videos has become increasingly important it is often claimed that illegal copying of intellectual property costs companies billions of dollars in lost revenues and reduces firms incentives to innovate some researchers have shown that copying can be beneficial to firms when there are strong network effects and copying expands the market in this paper we first examine the impact of illegal copying of software and other similar intellectual properties on firms prices profits and quality choices even when there are no network effects and the market is saturated we show that contrary to the claims of manufacturers there are conditions under which copying can increase firms profits lead to better quality products and increase social welfare this is because weaker copyright protection enables firms to reduce price competition by allowing price sensitive consumers to copy thus weaker copyright protection can serve as a coordination device to reduce price competition we also examine how equilibrium copyright enforcement is affected by network externalities in contrast to previous research we show that strong network effects can sometimes lead to a firm choosing higher levels of copyright protection our results show that in the presence of strong network effects stronger copyright enforcement by one firm can serve as a coordinating device to reduce price competition

the volatility of australian traded goods prices it is generally accepted that the australian economy is continually subject to unanticipated shocks particularly unexpected swings in the prices of australia s internationally traded goods this article empirically investigates the nature and extent of volatility in import and export prices faced by the australian production sector it estimates multivariate garch models of the stochastic processes generating the prices of imports and exports and of important components of exports and imports this article proposes an index of volatility which is used to provide a summary measure of the extent of volatility in a multivariate context the overall conclusion is that the price growth rates for australia s traded goods exhibit considerable time variation in volatility and that these price growth rates are highly and positively correlated with each other

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

public violence and state building in central america this article examines the role played by war and public violence more generally in the state building experiences of central america bellicist theory expects that wars provide a stimulus to extractive efforts thus enhancing the autonomy and capacity of the state over time though recent qualitative studies of south america find the opposite i expand the reach of bellicist theory to central america through the broader concept of public violence which captures the long term impact of external and internal rivals on the state the quantitative tests demonstrate that central american interstate and civil wars reduce the extractive ability of states consistent with the south american evidence interstate rivals stimulate extractive efforts among governments whereas intrastate rivals detract from those efforts incorporating the concept of public violence into bellicist theory thus helps to increase our understanding of central american state building

grabber holder dynamics and network effects in technology innovation abstract economists and marketing researchers have examined how network effects can have an impact on the adoption of technology and products and how an intrinsic inferior product or technology may dominate the market however their studies have not explained how a producer could create network effect for a new product and how after successfully creating the network effect for this product the producer could lose it in a short period of time while these studies provide insight into technology innovation after it happened they fail to shed light on understanding many of the surprises that we experience in the process the objective of this paper is to present a fundamental framework that helps us understand most of the surprising outcomes that we have seen in technology innovation processes especially the winners and losers in an innovation process the framework is built on a grabber holder dynamic model that captures how all the intelligent agents involved in an innovation shape the forces that either induce a strong network effect or destroy a network effect that is already in place the model can be used to explain many surprising events that have happened in technology innovation in this paper i apply the model to the personal computer innovation

the eclipse of the state reflections on stateness in an era of globalization the economic logic of the current international economy does not predict the eclipse of the state economic globalization does restrict state power but transnational capital needs capable states as much or more than does domestically oriented business national success in the current global political economy has been associated not with minimal states but with states that are capable active and engaged pressure for eclipse flows from the conjunction between transnational economic forces and the political hegemony of an anglo american ideology that in j p nettl s words simply leaves no room for any valid notion of the state even this combination of economic and political pressure is unlikely to eclipse the state but it is likely to put public institutions on the defensive eclipsing any possibility of the embedded liberalism described by john ruggie a leaner meaner state is the likely outcome the possibility of a more progressive alternative outcome would depend in part on whether current zero sum visions of the relation between the state and civil society can be replaced by a more synergistic view

network effects software provision and standardization in this paper we examine the software provision decision of software firms the provision decision by software firms determines the value and hence the market share of competing hardware technologies we show how the provision decision by software firms determines whether multiple hardware technologies are supported in equilibrium or whether there is de facto standardization with only one hardware technology supplied with software in equilibrium we show that when consumers place a high value on software variety there is a suboptimal amount of standardization by the market

international outsourcing and factor prices with multistage production we develop a dual representation of the technology of international fragmentation for an industry using 2 factors in a continuum of stages we then derive a generalised factor price frontier which incorporates an endogenous adjustment of the margin of fragmentation using this frontier in a 2 2 general equilibrium model we investigate the role of outsourcing in the adjustment to a decline in the final output price of the multistage industry and the attendant factor price effects we also explore the implications of an improved technology of international fragmentation on the margin of fragmentation and on domestic factor prices

entry in monopoly market this paper develops new empirical models of market concentration from game theoretic models of entry we construct our models from inequality conditions that describe entrants equilibrium strategies in simultaneous move and sequential move games and use them to study the effects of entry in isolated monopoly markets for new automobiles from estimates of the market size necessary to support one and two dealers we conclude that monopoly dealers do not block the entry of a second dealer we also find that entry does not cause price cost margins to fall by much

social capital for hire mobility of technical professionals and firm influence in wireless standards committees the movement of personnel between firms has been shown to have important implications for firms yet there has been little direct investigation of the underlying mechanisms we propose that in addition to their human capital mobile individuals carry social capital affecting the outcomes of the firms they join and leave by altering the patterns of interaction between firms in this study we examine how job mobility affects firm influence in a technical standards setting committee for u s wireless telecommunications we hypothesize and find that hiring individuals who are richer in social capital increases firm influence in technical standards setting committees by increasing the hiring firm s social capital we also find the benefits of hiring social capital are attenuated when an interfirm relationship is maintained by multiple individuals in contrast we find that the loss of personnel does not affect a firm s social capital or influence over standards directly but that it does have an effect on firm social capital and influence contingent on changes in the firm s business strategy in advancing these arguments we address the broader question of individuals as carriers of social capital and the conditions under which interpersonal connections are appropriable by firms

privatisation and liberalisation in an industry with network externalities abstract network externalities and sunk costs can make a profit maximising monopoly superior to competition even if a large number of firms can enter competition can outperform a public monopoly only if sunk costs become significantly lower

competing by restricting choice the case of search platforms we show that a two sided matching platform can successfully compete by limiting the number of choices it offers to its customers while charging higher prices than platforms with unrestricted choice we develop a stylized model of online dating where agents with different outside options match based on how much they like each other starting from these microfoundations we derive the strength and direction of indirect network effects and show that increasing the number of potential matches has a positive effect due to larger choice but also a negative effect due to competition between agents on the same side agents resolve the trade off between these competing effects differently depending on their outside options for agents with high outside options the choice effect is stronger than the competition effect leading them to prefer an unrestricted choice platform the opposite is the case for agents with low outside options who then have higher willingness to pay for a platform restricting choice as

waves in consumption with interdependence among consumers this paper presents a model to analyze the development of consumption patterns when there are social interactions among consumers in particular a consumer in this model recognizes three reference groups a peer group of similar consumers with whom the consumer wishes to share consumption activities a distinction group from which the consumer wishes to distinguish him or herself and an aspiration group to which the consumer does not belong but wishes that he she did and with whom the consumer would like to share consumption activities the interplay of aspiration and distinction can lead to waves in consumption these can happen when for example the avant garde consumption of up market pioneers is copied by other types of consumer as the latter aspire to emulate the former the former in turn seek to distinguish themselves from these unwelcome companions by varying their consumption in consequence a particular consumption activity may start up market an then gradually proceed down the social spectrum more complex patterns with continuing cycles in consumption can also be found the paper argues that this model is not only applicable to the consumption behaviour of an elite or would be elite but is relevant in a wide range of consumption settings

competing technologies the learning curve and rational expectations abstract the problem of choice between several variants of a technology subject to dynamic learning economies is examined in a rational expectations model with overlapping adopters it is shown that even with rational expectations the long term market outcome depends sensitively on the pattern of early chance events and that only one variant of the technology will come to dominate the market in the long run this variant need not be the one which is socially optimal or most promising technically

findings biased but efficient an investigation of coordination facilitated by asymmetric dominance in several marketing contexts strategic complementarity between the actions of individual players demands that players coordinate their decisions to reach efficient outcomes yet coordination failure is a common occurrence we show that the well established psychological phenomenon of asymmetric dominance can facilitate coordination in two experiments thus we demonstrate a counterintuitive result a common bias in individual decision making can help players to coordinate their decisions to obtain efficient outcomes further limited steps of thinking alone cannot account for the observed asymmetric dominance effect the effect appears to be due to increased psychological attractiveness of the dominating strategy with our estimates of the incremental attractiveness ranging from 3 6 a learning analysis further clarifies that asymmetric dominance and adaptive learning can guide players to an efficient outcome

globalizing carbon lock in this paper extends the arguments surrounding carbon lock in elaborated in unruh energy policy 28 2000 817 30 2002 317 to countries currently undergoing industrialization it argues that for numerous reasons industrializing countries are unlikely to leapfrog carbon intensive energy development on the contrary carbon lock in may be globalizing and could further constrain climate change mitigation options it is then argued that many policy recommendations ignore carbon lock in possibly limiting their potential for successful implementation the paper then discusses four policy approaches that appear to have advantages given lock in conditions it is recognized however that relative ease of implementation does not necessarily equate with superiority instead it is merely a path dependent outcome of past development decisions pursuing policies on the basis of relative implementation ease may help address the issue of climate change but could also result in sub optimal outcomes along other dimensions of sustainable development

from exogenous to endogenous economic networks internet applications economic agents behaviour is affected by their position in a network either exogenous or endogenous in which they interact with a sub set of neighbours only the network s links which may be generated by vertical and or horizontal relations or by more complex morphologies may explain the transition between dynamic equilibria and the instability of economic aggregates moreover networks shape strategic interaction among agents by determining their strategies the problem of access and interconnection particularly relevant in the internet is perhaps the best example a two way feedback between strategies and network structures arises instead when links are endogenous those features are clearly shown in the mechanism underlying the formation of peering links an dr d networks

tortoises and hares choice among technologies of unknown merit recent work in the area of competing technologies and increasing returns has largely been concerned with the effectiveness of the market in delivering optimal outcomes the existence of inefficient market outcomes suggests that there might be a place for intervention in the technology choice process this paper develops a model of sequential choice in which the choice process is subject to centralized control the model is used to show that intervention can increase the expected present value of the technology adoption process it remains however that one technology and not necessarily the best will come to dominate the market copyright 1991 by royal economic society

a global game with strategic substitutes and complements abstract we study a global game in which actions are strategic complements over some region and strategic substitutes over another region an agent s payoff depends on a market fundamental and the actions of other agents if the degree of congestion is sufficiently large agents strategies are non monotonic in their signal about the market fundamental in this case a signal that makes them believe that the market fundamental is more favorable for an action may make them less likely to take the action because of the risk of overcrowding

social learning and dynamic pricing of durable goods we analyze the impacts of social learning sl on the dynamic pricing and consumer adoption of durable goods in a two period monopoly consumers can make either early uninformed purchases or late but potentially informed purchases as a result of social learning several results are derived first we identify the market conditions under which ex ante homogeneous consumers may choose to purchase at different times second equilibrium adoption may demonstrate inertia where all adopt late or frenzy where all adopt early in particular adoption inertia appears when sl intensity is reasonably high but may vanish when sl intensity exceeds a certain threshold third firm profits and social welfare first weakly decrease in sl intensity and may then jump up by a lump sum amount at the threshold sl intensity level mentioned above last we show that the firm potentially benefits from informative advertising or investing to cultivate more social learning

growth incentives to invest in a network externality environment firms that operate in the telecommunications industry often have to make large and risky investments in digital infrastructure this paper examines how firm size affects the incentive to invest in infrastructure projects in industry environments that incur substantial network externalities we suggest that in the presence of network externalities a firm s rate of growth first declines and then increases with the size of its user base an implication of this result is that firms may benefit from making investments in emerging digital infrastructure early enough to achieve a substantial user base and to gain that user base before other firms investments pre empt them the results mean that firms that undertake earlier successful investment may achieve preemption very quickly the sources of network externalities contribute to the incidence of strategic alliances in network industries particularly when coupled with the pressures of technical uncertainty copyright 1998 by oxford university press

speeding up the internet regulation and investment in european fiber optic infrastructure in this paper we study how the coexistence of access regulations for legacy copper and fiber networks shapes the incentives to invest in network infrastructure to this end we develop a theoretical model explaining investment incentives by incumbent telecom operators and heterogeneous entrants and test its main predictions using panel data from 27 eu member states over the last decade our theoretical model extends the existing literature by among other things allowing for heterogeneous entrants in internet access markets as we consider both other telecom and cable tv operators as entrants in the empirical part we use a novel data set including information on physical fiber network investments legacy network access regulation and recently imposed fiber access regulations our main finding is that more stringent access regulations for both the legacy and the fiber networks harm investments by incumbent telecom operators but in line with our theoretical model do not affect cable tv operators

coordinating adoption decisions under externalities and incomplete information abstract a monopolist sells a good whose value depends on the number of buyers who adopt it as well as on their private types the seller coordinates the buyers adoption decisions based on their reported types and charges them the price based on the number of adoptions we study ex post implementable sales schemes that are collusion proof and show that under the revenue maximizing scheme more buyer types are willing to adopt when there are more adoptions and the number of adoptions is maximized subject to the participation constraints

rational incompatibility with international product standards abstract international product standardization enables traditional price based competition but the existence of redesign costs or network effects creates market frictions that diminish the incentive to standardize if there already exists a different technology in an established market this leads to multi attribute competition between products and will generally reduce trade flows not only do incumbent firms using a different technology have an incentive to deviate from an international standard but a host country government concerned for its consumers welfare has no incentive to enforce the international standard and may even value deviation from the international standard through technical barriers to trade

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

trade and communication costs two models in which communication costs are a cost to trade are investigated one model looks at the role of communication in determining the firms geographic extent in the use of local factor services communication costs are modelled as a quasi public good network in which communication services are provided by an average cost pricing monopolist the network technology is subject to increasing returns congestion effects and network externalities the second model focuses on communication for the purposes of international trade in goods with similar assumptions on the technology of communication as in the first model in this model an important distinction is made between international equilibrium and global equilibrium in both models the impact of reductions in communication costs on the market extent of firms trade volumes and productivity are examined the models have generic multiple equilibria with quite different welfare and comparative static properties

the diffusion of clean technologies a review with suggestions for future diffusion analysis abstract this article gives an overview of the literature on clean technology diffusion followed by suggestions for future analysis findings from diffusion analysis are presented in the form of 10 stylised facts helping the reader to see the forest for the trees the overall conclusion is that the diffusion of clean technology same as the diffusion of normal innovations is governed by endogenous mechanism epidemic learning and learning economies and by exogenous mechanisms policy is important for clean technology diffusion but other factors are important too the characteristics of the clean technology absorptive capacities of potential adopters and the age structure of capital it is often overlooked that companies have a choice they can choose between an end of pipe solution a process change adaptation and a change of process substitution this means that the diffusion and evolution of one clean technology will be at the expense of the diffusion of another clean technology something overlooked in studies on clean technology diffusion further research is needed on the influence of public policy on clean technology choice expectations about learning economies and prices adjustment costs network externalities and complementary innovations on clean technology adoption choices

network effects on strategic interactions a laboratory approach abstract we examine the effect of interaction structure network on two classes of collective activities herding and shirking respectively referring to the situation where a player s incentive to take a certain action increases and decreases if more of her network neighbors follow the same action in our experiment we find that subjects do not act according to theoretical equilibrium and their frequencies of making the socially beneficial choice in herding and shirking games are inversely influenced by the number of network neighbors they have moreover the observed local network effect is stronger in shirking games while the global network effect is more significantly present in herding games we explain the behavioral regularities through a hybrid learning model which extends sewa learning into a network context as such our learning model provides a foundation for the observed dynamics disequilibrium behavior as well as the local and global network effects

the market value of rarity abstract most theories of demand assume that consumers value the characteristics of products but are unconcerned with how many other consumers also consume the product however several theories of demand argue that consumers can value the exclusivity of possessing a rare object we test this implication on a particular collectible rare coins our paper examines the case of coins of a given type and identical quality that have mintages in different quantities this allows us to exclude the common case in which rarity or price itself is an indicator of quality for our sample rarer coins command higher prices rarity in the form of original mintage more strongly influences the market price than does collectibility as represented by the rarest coins of each mint mark or year we also point out that here may be other goods such as automobiles for which rarity may influence market demand

local network externalities and market segmentation this paper models interaction between groups of agents by means of a graph where each node represents a group of agents and an arc represents bilateral interaction it departs from the standard katz shapiro framework by assuming that network benefits are restricted only amongst groups of linked agents it shows that even if rival firms engage in bertrand competition this form of network externalities permits strong market segmentation in which firms divide up the market and earn positive profits the analysis also shows that some graphs or network structures do not permit such segmentation while for others there are easy to interpret conditions under which market segmentation obtains in equilibrium c 2009 elsevier b v all rights reserved

the welfare implications of unauthorized reproduction of intellectual property in the presence of demand network externalities this paper finds that unauthorized reproduction of intellectual property in the presence of demand network externalities can not only induce greater firm profits relative to the case where there is no copying it can lead to a pareto improvement in social welfare ceteris paribus when network externalities are present firms have a greater incentive to expand output because marginal revenue is higher and or they may wish to create preemptive installed bases this paper suggests that unauthorized copying can be a relatively efficient means of achieving this by allowing the firm in effect to price discriminate among different classes of consumers copyright 1994 by blackwell publishing ltd

configuring value for competitive advantage on chains shops and networks building on thompson s 1967 typology of long linked intensive and mediating technologies this paper explores the idea that the value chain the value shop and the value network are three distinct generic value configuration models required to understand and analyze firm level value creation logic across a broad range of industries and firms while the long linked technology delivers value by transforming inputs into products the intensive technology delivers value by resolving unique customer problems and the mediating technology delivers value by enabling direct and indirect exchanges between customers with the identification of alternative value creation technologies value chain analysis is both sharpened and generalized into what we propose as a value configuration analysis approach to the diagnosis of competitive advantage with the long linked technology and the corresponding value chain configuration model as benchmark the paper reviews the distinctive logic and develops models of the value shop and the value network in terms of primary activity categories drivers of cost and value and strategic positioning options 1998 john wiley sons ltd

to segregate or to integrate education politics and democracy how is the quality of public education affected by the presence of private schools for the rich theory and evidence suggest that the link depends crucially on the political system we develop a theory that integrates private education and fertility decisions with voting on public schooling expenditures we find that the presence of a large private education sector benefits public schools in a broad based democracy where politicians are responsive to low income families but crowds out public education spending in a society that is politically dominated by the rich the main predictions of the theory are consistent with state level data and micro data from the u s as well as cross country evidence from the programme for international student assessment study

nonlinear pricing of telecommunications with call and network externalities abstract this paper investigates how call and network externalities affect a monopolist s optimal nonlinear tariff in a two way telecommunication service market where consumers valuations for outgoing and incoming calls are positively correlated and the firm is not allowed to charge incoming calls it is shown that in contrast to the traditional efficiency on the top result all subscribers including those with the highest willingness to pay make suboptimal quantities of calls in the equilibrium the presence of call externalities may result in the existence of no call making subscribers in equilibrium also the firm may have incentives to sell the service below costs to some low valuation consumers in order to take advantage of the effect of network externalities

network effects without network externalities abstract the network externalities hypothesis postulates that consumers prefer to purchase brands which are bought by more consumers compared with brands with a low market share in this paper we show that increasing returns to scale in the production of complementary products can substitute for the network externalities assumption we develop a model for the computer industry in which the production of complementary software requires a large fixed cost of development relative to the cost of duplicating and marketing the software the increasing returns to scale in the production of software yields consumers behavior which is very similar to consumers who have preferences exhibiting network externalities

the city network paradigm measuring urban network externalities in recent years network behaviour has been analysed extensively as the emerging model for economic growth by network behaviour a metaphor for co operative behaviour among individuals corporate

theorizing path dependence a review of positive feedback mechanisms in technology markets regional clusters and organizations the concept of path dependence has often been criticized as vague and only narrowly applicable although we can find some very refined definitions of the concept we also find a wide range of empirical phenomena being described as path dependent we argue that more detailed accounts of the positive feedback mechanisms that form paths can take path dependence beyond this state of being overdetermined but under specified reviewing three well described cases of path dependent dynamics in technology markets regional clustering and organizations we define a core set of positive feedback mechanisms that constitute path dependence at different analysis levels and clarify the relationship between positive feedback and increasing returns we show that path dependent processes that is processes driven by positive feedback that veer toward rigidity or lock in can be but do not have to be found under many labels including structural inertia coevolution or institutional persistence we conclude that a precise definition of path dependence does not need to be at odds with the concept s widespread use in understanding organizational and industrial development processes copyright 2013 the author 2012 published by oxford university press on behalf of associazione icc all rights reserved oxford university press

network effects market structure and industry performance abstract this paper analyzes oligopolistic markets with network externalities exploiting a minimal complementarity structure on the model primitives that allows for pure network goods we prove existence of non trivial fulfilled expectations equilibrium we formalize the concept of industry viability investigate its determinants and show that it improves with more firms in the market and or by technological progress these results enlighten some well known conclusions from case studies in the management strategy literature we also characterize the effects of market structure on industry performance which depart substantially from ordinary markets the approach relies on lattice theoretic methods supplemented with basic insights from nonsmooth analysis

technology choice and timing with positive network effects abstract when two competing and incompatible products coexist in a market potential users face a choice between the two products and the alternative of deferring the decision this paper examines the choice between the two substitutes where each one is subject to a positive network effect that is a user of one of the products experiences an increase in the value for each additional person using the same product we examine this buy or wait problem either for an individual or a manager making the investment on behalf of a firm by formulating and analyzing a decision theoretic model to model the stochastic evolution of market share we build on the generalized polya urn of arthur et al arthur w b ermoliev y m kaniovski y m 1987 path dependent processes and the emergence of macro structure european journal of operational research 30 3 294 303 allowing for composition of the market to affect not just the relative market shares but also the absolute growth rate of the market we show that the optimal strategy is defined by a pair of market penetration thresholds that depend on the market composition looking at the effect of the network effects on the optimal strategy we find that more pronounced network effects can either raise or lower the penetration thresholds

a positive theory of flexibility in accounting standards abstract we develop a positive theory of accounting standards when standards generate network externalities and differ in the amount of reporting discretion or flexibility they provide firms we evaluate expected value maximizing firms preferences between two standards regimes rigid and flexible as the number of firms subject to each standard varies as the organization of the securities market varies and as the mapping from the underlying economics of the firms transactions to the accounting reports produced under the two standards vary we also compare firms preferences between the two regimes to the preferences of profit maximizing traders in the firms securities

the economics of convention c onventions regulate much of economic and social life yet they have received surprisingly little attention from economists by a convention we mean a pattern of behavior that is customary expected and self enforcing everyone conforms everyone expects others to conform and everyone has good reason to conform because conforming is in each person s best interest when everyone else plans to conform lewis 1969 familiar examples include following rules of the road adhering to conventional codes of dress and using words with their conventional meanings conventions with direct economic implications include species of money and credit industrial and technological standards accounting rules and forms of economic contracts indeed it would scarcely be an exaggeration to say that almost all economic and social institutions are governed to some extent by convention the main feature of a convention is that out of a host of conceivable choices only one is actually used this fact also explains why conventions are needed they resolve problems of indeterminacy in interactions that have multiple equilibria indeed from a formal point of view we may define a convention as an equilibrium that everyone expects in interactions that have more than one equilibrium the economic significance of conventions is that they reduce transaction costs imagine the inconvenience if whenever two vehicles approached one another the important exceptions are sugden 1986 and ullman margalit 1977 the interested reader might also refer to the symposium on social norms that appeared in the fall 1989 issue of this journal with articles by sugden 1989 and elster 1989

product compatibility as a signal of quality in a market with network externalities abstract in this paper i consider the compatibility decision as a signaling device of the quality of a newly introduced technology of which users are not informed provided that firms are located sufficiently far apart in hotelling s 0 1 interval i find separating equilibria where low compatibility signals high quality this possible separation is due to the fact that low compatibility is more advantageous to the high quality entrant than to the low quality entrant since it can prevent users of the established technology from enjoying network benefits from the new technology very much

international trade and consumption network externalities abstract this paper studies the effects of trade liberalization in the presence of consumption network externalities the framework is applicable to the choice of network products and sheds light on the debate on globalization and culture in an extended ricardian model of international trade the paper shows that i trade is not pareto inferior to autarky if the free trade equilibrium is unique ii trade is not pareto superior to autarky if both countries are diverse network competition under free trade but can be if each country is homogenous network monopoly iii and when multiple free trade equilibria exist everybody in a country can lose from free trade if that country is homogenous under autarky consumers of imported network goods tend to gain while consumers of exported network goods tend to lose from trade liberalization

modelling the conditional volatility of commodity index futures as a regime switching process commodity index futures offer a versatile tool for gaining different forms of exposure to commodity markets volatility is a critical input in many of these applications this paper examines issues in modelling the conditional variance of futures returns based on the goldman sachs commodity index gsci given that commodity markets tend to be choppy webb 1987 a general econometric model is proposed that allows for abrupt changes or regime shifts in volatility transition probabilities which vary explicitly with observable fundamentals such as the basis garch dynamics seasonal variations and conditional leptokurtosis the model is applied to daily futures returns on the gsci over 1992 1997 the results show clear evidence of regime shifts in conditional mean and volatility once regime shifts are accounted for garch effects are minimal consistent with the theory of storage returns are more likely to switch to the high variance state when the basis is negative than when the basis is positive the regime switching model also performs well in forecasting the daily volatility compared to standard garch models without regime switches the model should be of interest to sophisticated traders who base their trading strategies on short term volatility movements managed commodity funds interested in hedging an underlying diversified portfolio of commodities and investors of options and other derivatives tied to gsci futures contracts copyright 2001 john wiley sons ltd

obtaining strategic advantage from being imitated when can encouraging clones pay an important business strategy research theme concerns finding ways to minimize competition faced by the firm this paper however focuses on a different set of situations the model developed suggests that an innovator s best strategy may be to encourage clones of its product when a network externality is present key factors to consider in assessing whether encouraging cloning is the innovator s best strategy are 1 the benefit to be derived in terms of added user base contributed by the clone sales traded off against 2 the unit sales that will be lost to the clones these factors in turn depend upon the strength of the network effect and the degree to which the innovator s product quality is perceived by consumers to be superior to the clone s the model further suggests that both the innovator and clone earn their highest payoffs when the clone takes the lead in price setting i e when the clone establishes its own price by considering for each price it might set how the innovator will react to that price and the innovator as price follower responds to the price the clone chooses the paper demonstrates that the clone leader innovator follower situation represents the unique nash equilibrium in price setting strategies a central implication is that when operating in a network externality environment instead of a problem to be avoided clones may be valuable assets to an innovating firm building up the user base for the innovator s technology by bringing lower valuing consumers into the market which in turn makes the innovator s product more attractive to high and medium valuing purchasers thus when the above described conditions hold being cloned can be more profitable for an innovating firm than dominating the market alone

technical compatibility and the mode of foreign entry with network externalities we examine the preferences of a foreign firm and a local government over two modes of foreign direct investment de novo entry and acquisition of the domestic incumbent two crucial features of the model are network externalities and partial incompatibility between the domestic and the foreign technology the relative welfare impact of the two entry modes depends on the degree of market competition and the strength of the network externality the clash between the foreign firm s choice and the local government s ranking of the two entry modes can motivate limits on the degree of foreign ownership of the local firm ce texte examine les preferences d une firme etrangere et d un gouvernement du pays hote quant a deux modes d investissement direct de l etranger entree de novo de la firme etrangere versus acquisition d une firme domestique en place deux facteurs pris en compte sont la presence d externalites de reseau et d incompatibilite partielle entre la technologie locale et celle introduite par la firme etrangere l impact relatif des modes d entree sur le mieux etre local depend du degre de concurrence sur le marche et de l importance des externalites de reseau le conflit entre les preferences de l entreprise etrangere et les preferences du gouvernement local peuvent etre a la source de politiques qui limitent le degre de proprieteetrangere permis

interconnected communications networks and home market effects abstract this study develops a model of trade that highlights the effects of the interconnection of country specific communications networks as a driving force behind trade in high tech products with positive transport costs by constructing a two country model of monopolistic competition with two production factors it is shown that the locational decisions of firms may magnify the influence of interconnected networks in a reversal of the standard home market effects the abundance of unskilled labour in the developing countries can attract high tech firms from the developed countries jel classification d43 f12 l13

exclusionary pricing in markets with interdependent demands in this paper i use a simple model to study the competitive effects of exclusionary pricing involving two markets related by a positive demand externality it is shown that below cost pricing on one of these markets can allow an incumbent firm to exclude from both markets a more efficient rival which does not have a customer base yet however when exclusion occurs it is always socially optimal in addition under some circumstances there is inefficient entry the entrant wins both markets while the social optimum would require the incumbent to win them