A duopoly Logit model with price competition and strategic compatibility

This paper provides an analysis of compatibility decisions with oligopolistic price setting in a duopoly logit model. We consider a sequential game in which firms first choose whether they supply compatible products and then set the price which is charged. The equilibrium compatibility configuration is the outcome of a trade-off between consumers valuation of compatibility and the loss of product differentiation which is associated with compatibility. Finally, it is shown that firms incentives towards compatibility tend to be socially insufficient.industrial organization ;

Imitation and Efficient Contagion

In this paper we study the conditions under which efficient behavior can spread from a finite initial seed group to an infinite population living on a network. We formulate conditions on payoffs and network structure under which overall contagion occurs in arbitrary regular networks. Central in this process is the communication pattern among players who are confronted with the same decision, i.e. who are at the same distance from the initial seed group. The extent to which these agents interact among themselves (rather than with players who already have faced or subsequently will face the decision problem) is critical in the Prisoner’s Dilemma. In the Coordination Game the key element is the cohesion of the efficient cluster, a property which is different from the one identified in the Prisoner’s Dilemma. Additional results are obtained when we distinguish the interaction and information neighborhoods. Specifically, we find that contagion tends to be favored by fast neighborhood growth if an assumption of conservative behavior is made. We discuss our findings in relation to the notions of clustering, transitivity and cohesion.imitation, contagion, regular graphs, local interaction game

Merit, Approbation and the Evolution of Social Structure

In this paper we study a society in which individuals gain utility from income and from social approbation. Income is correlated with class. Approbation is given to an unobservable trait, which must be signalled through the agent’s social mobility, i.e. class change. Mobility is driven by a simple mechanism involving inheritance, effort and ability. Thus social structure (class composition) is affected by individuals’ quest for approbation, and we study how that affects the emergence and multiplicity of long run social organizations, including hybrid forms of dynasties and meritocracies. Specifically we observe that even though social mobility is driven purely by a meritocratic mechanism, pure dynasties can emerge. We then introduce a feedback between the size of the upper class and its income value, so that effort levels and social structure are jointly endogenous. We derive results on equilibrium effort levels and stationary (when they exist) social structures. Social organization can converge to a unique steady state, multiple long run equilibria or cycles.Economics of Technology;

If the Alliance Fits . . . : Innovation and Network Dynamics.

Network formation is often said to be driven by social capital considerations. A typical pattern observed in the empirical data on strategic alliances is that of small world networks: dense subgroups of firms interconnected by (few) clique-spanning ties. The typical argument is that there is social capital value both to being embedded in a dense cluster, and to bridging disconnected clusters. In this paper we develop and analyze a simple model of joint innovation where we are able to reproduce these features, based solely on the assumption that successful partnering demands some intermediate amount of similarity between the partners.

Information Technology and the Dynamics of Joint Innovation

We develop a model of an innovative industry to examine how information technology, by both enhancing matching efficiency and knowledge sharing, can have an ambiguous effect on the total amount of innovation. We consider a population of firms holding different knowledge expertise, and forming partnerships to conduct joint R&D. We assume that bringing together different expertise has positive value for innovating but also that joint innovation implies a partial convergence of the partners'' expertise. We study how the distribution of firms changes and thus how the innovative potential of the economy evolves. We show that as heterogeneity is used as an input by the innovative process, the industry must eventually collapse to a unique expertise, but how fast this takes place depends on the quality of IT. As a result of falling dispersion, a tension arises between static and dynamic efficiency. JEL Classification Numbers: C78,O33,O38.mathematical economics and econometrics ;

Social Sorting

This paper is about the behaviour of a society in which learning individuals play a Prisoner’s Dilemma that guides social promotion and demotion. The direct effect of the payoff-based socialization that is implemented here is segregation. However, segregation permits the survival of cooperation as it (unintendedly) preserves cooperators from detrimental interactions with defectors. Very large amounts of cooperation can be observed in the long run.microeconomics ;

A note on compatibility and entry in a circular model of product differentiation

Consider an industry in which network goods are supplied by two horizontally differentiated firms facing the threat of a potential entrant. Firms' dilemma is between occupying the product space by selling very differentiated (incompatible) goods, and supplying compatible goods that offer higher utilities hence can be charged a higher price to consumers but are also closer substitutes. The compatibility-entry-price game is solved backward when firms and consumers are located on a circular product space. It turns out that strong externalities can favour entry, as merging the networks and accommodating entry can be preferred by the incumbents.compatibility

If the Alliance Fits . . . : Innovation and Network Dynamics

Network formation is often said to be driven by social capital considerations. A typical pattern observed in the empirical data on strategic alliances is that of small world networks: dense subgroups of firms interconnected by (few) clique-spanning ties. The typical argument is that there is social capital value both to being embedded in a dense cluster, and to bridging disconnected clusters. In this paper we develop and analyze a simple model of joint innovation where we are able to reproduce these features, based solely on the assumption that successful partnering demands some intermediate amount of similarity between the partners.Network formation, Strategic alliances, Knowledge portfolios, Knowledge transfer

Structural Holes, Innovation and the Distribution of Ideas

We model knowledge diffusion in a population of agents situated on a network, interacting only over direct ties. Some agents are by nature traders, others are by nature "givers": traders demand a quid pro quo for information transfer; givers do not. We are interested in efficiency of diffusion and explore the interplay between the structure of the population (proportion of traders), the network structure (clustering, path length and degree distribution), and the scarcity of knowledge. We find that at the global level, trading (as opposed to giving) reduces efficiency. At the individual level, highly connected agents do well when knowledge is scarce, agents in clustered neighbourhoods do well when it is abundant. The latter finding is connected to the debate on structural holes and social capital.Innovation, Diffusion of Innovations, Knowledge, Information, Networks

Fits and Misfits: Technological Matching and R&D Networks

This paper presents an economic model of R&D network formation through the creation of strategic alliances. Firms are randomly endowed with knowledge elements. They base their alliance decisions purely on the technological fit of potential partners, ignoring social capital considerations and indirect benefits on the network. This is sufficient to generate equilibrium networks with the small world properties of observed alliance networks, namely short pairwise distances and local clustering. The equilibrium networks are more clustered than "comparable" random graphs, while they have similar characteristic path length. Two extreme regimes of competition are examined, to show that while the competition has a quantitative effect on the equilibrium networks (density is lower with competition), the small world features of the equilibrium networks are preserved.network formation, small worlds, R&D networks, strategic alliances, business clusters