IDEAS home Printed from https://ideas.repec.org/p/cam/camdae/0445.html
   My bibliography  Save this paper

From Exogenous to Endogenous Networks: Internet Applications

Author

Listed:
  • D'Ignazio, A.
  • Giovannetti, E.

Abstract

Economic agents' behavior is affected by their position in a network, either exogenous or endogenous, in which they interact with a subset 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 and R & D networks.

Suggested Citation

  • D'Ignazio, A. & Giovannetti, E., 2004. "From Exogenous to Endogenous Networks: Internet Applications," Cambridge Working Papers in Economics 0445, Faculty of Economics, University of Cambridge.
  • Handle: RePEc:cam:camdae:0445
    Note: IO
    as

    Download full text from publisher

    File URL: http://www.econ.cam.ac.uk/research-files/repec/cam/pdf/cwpe0445.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Spagnolo, Giancarlo & Lippert, Steffen, 2004. "Networks of Relations," SSE/EFI Working Paper Series in Economics and Finance 570, Stockholm School of Economics, revised 04 Jun 2010.
    2. Slikker, Marco & van den Nouweland, Anne, 2001. "A One-Stage Model of Link Formation and Payoff Division," Games and Economic Behavior, Elsevier, vol. 34(1), pages 153-175, January.
    3. Stef Tijs & Anne van den Nouweland & Bhaskar Dutta, 1998. "Link formation in cooperative situations," International Journal of Game Theory, Springer;Game Theory Society, vol. 27(2), pages 245-256.
    4. Goyal, Sanjeev, 2003. "Learning in Networks: a survey," Economics Discussion Papers 9983, University of Essex, Department of Economics.
    5. Kirman, Alan P & Oddou, Claude & Weber, Shlomo, 1986. "Stochastic Communication and Coalition Formation," Econometrica, Econometric Society, vol. 54(1), pages 129-138, January.
    6. Venkatesh Bala & Sanjeev Goyal, 1998. "Learning from Neighbours," Review of Economic Studies, Oxford University Press, vol. 65(3), pages 595-621.
    7. Haller, Hans, 1990. "Large random graphs in pseudo-metric spaces," Mathematical Social Sciences, Elsevier, vol. 20(2), pages 147-164, October.
    8. Jackson, Matthew O. & Wolinsky, Asher, 1996. "A Strategic Model of Social and Economic Networks," Journal of Economic Theory, Elsevier, vol. 71(1), pages 44-74, October.
    9. Goyal, Sanjeev & Joshi, Sumit, 2003. "Networks of collaboration in oligopoly," Games and Economic Behavior, Elsevier, vol. 43(1), pages 57-85, April.
    10. Pio Baake & Thorsten Wichmann, 1999. "On the economics of Internet peering," Netnomics, Springer, vol. 1(1), pages 89-105, October.
    11. Gabrielle Demange & Wooders Myrna, 2005. "Group Formation in Economics: Networks, Clubs and Coalitions," Post-Print halshs-00576778, HAL.
    12. Bak, Per & Chen, Kan & Scheinkman, Jose & Woodford, Michael, 1993. "Aggregate fluctuations from independent sectoral shocks: self-organized criticality in a model of production and inventory dynamics," Ricerche Economiche, Elsevier, vol. 47(1), pages 3-30, March.
    13. Ordover, Janusz A & Saloner, Garth & Salop, Steven C, 1990. "Equilibrium Vertical Foreclosure," American Economic Review, American Economic Association, vol. 80(1), pages 127-142, March.
    14. Rachel E. Kranton & Deborah F. Minehart, 2000. "Networks versus Vertical Integration," RAND Journal of Economics, The RAND Corporation, vol. 31(3), pages 570-601, Autumn.
    15. Armstrong, Mark, 2001. "The theory of access pricing and interconnection," MPRA Paper 15608, University Library of Munich, Germany.
    16. Michael A. Salinger, 1988. "Vertical Mergers and Market Foreclosure," The Quarterly Journal of Economics, Oxford University Press, vol. 103(2), pages 345-356.
    17. Jacques Crémer & Patrick Rey & Jean Tirole, 2000. "Connectivity in the Commercial Internet," Journal of Industrial Economics, Wiley Blackwell, vol. 48(4), pages 433-472, December.
    18. Galeotti, Andrea & Goyal, Sanjeev & Kamphorst, Jurjen, 2006. "Network formation with heterogeneous players," Games and Economic Behavior, Elsevier, vol. 54(2), pages 353-372, February.
    19. Jean Tirole, 1988. "The Theory of Industrial Organization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262200716, December.
    20. Nicholas Economides, 1997. "The Economics of Networks," Brazilian Electronic Journal of Economics, Department of Economics, Universidade Federal de Pernambuco, vol. 1(0), December.
    21. Roson Roberto, 2002. "Two Papers on Internet Connectivity and Quality," Review of Network Economics, De Gruyter, vol. 1(1), pages 1-6, March.
    22. Steven N. Durlauf, 1993. "Nonergodic Economic Growth," Review of Economic Studies, Oxford University Press, vol. 60(2), pages 349-366.
    23. Katz, Michael L & Shapiro, Carl, 1985. "Network Externalities, Competition, and Compatibility," American Economic Review, American Economic Association, vol. 75(3), pages 424-440, June.
    24. Sanjeev Goyal & Sumit Joshi, 2006. "Unequal connections," International Journal of Game Theory, Springer;Game Theory Society, vol. 34(3), pages 319-349, October.
    25. Watts, Alison, 2001. "A Dynamic Model of Network Formation," Games and Economic Behavior, Elsevier, vol. 34(2), pages 331-341, February.
    26. Giovannetti, Emanuele, 2002. "Interconnection, differentiation and bottlenecks in the Internet," Information Economics and Policy, Elsevier, vol. 14(3), pages 385-404, September.
    27. Laffont, Jean-Jacques & Marcus, Scott & Rey, Patrick & Tirole, Jean, 2003. "Internet Interconnection and the Off-Net-Cost Pricing Principle," RAND Journal of Economics, The RAND Corporation, vol. 34(2), pages 370-390, Summer.
    28. Elettra Agliardi & Emanuele Giovannetti, 1998. "Morphogenesis of an institution on a lattice game," Discrete Dynamics in Nature and Society, Hindawi, vol. 2, pages 1-5, January.
    29. Narine Badasyan & Subhadip Chakrabarti, 2003. "Private Peering Among Internet Backbone Providers," Microeconomics 0301003, University Library of Munich, Germany.
    30. Johnson, C. & Gilles, R.P., 1999. "Spatial Social Networks," Discussion Paper 1999-87, Tilburg University, Center for Economic Research.
    31. Ellison, Glenn & Fudenberg, Drew, 1993. "Rules of Thumb for Social Learning," Journal of Political Economy, University of Chicago Press, vol. 101(4), pages 612-643, August.
    32. Follmer, Hans, 1974. "Random economies with many interacting agents," Journal of Mathematical Economics, Elsevier, vol. 1(1), pages 51-62, March.
    33. Johnson, C. & Gilles, R.P., 1999. "Spatial Social Networks," Other publications TiSEM 5106db3c-8785-4ab3-8d20-1, Tilburg University, School of Economics and Management.
    34. Matthew O. Jackson, 2003. "A Survey of Models of Network Formation: Stability and Efficiency," Game Theory and Information 0303011, University Library of Munich, Germany.
    35. Emanuele Giovannetti, 2004. "Internet Upstream Connectivity and Competition Policy: Western Europe and Southern Africa," Chapters, in: Mitsuhiro Kagami & Masatsugu Tsuji & Emanuele Giovannetti (ed.), Information Technology Policy and the Digital Divide, chapter 3, Edward Elgar Publishing.
    36. Giovannetti, E. & Ristuccia, C.A., 2003. "Estimating Market Power in the Internet Backbone Using Band-X data," Cambridge Working Papers in Economics 0332, Faculty of Economics, University of Cambridge.
    37. Jean-Jacques Laffont & Jean Tirole, 2001. "Competition in Telecommunications," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262621509, December.
    38. repec:fth:tilbur:9987 is not listed on IDEAS
    39. Dutta, Bhaskar & Mutuswami, Suresh, 1997. "Stable Networks," Journal of Economic Theory, Elsevier, vol. 76(2), pages 322-344, October.
      • Dutta, Bhaskar & Mutuswami, Suresh, 1996. "Stable Networks," Working Papers 971, California Institute of Technology, Division of the Humanities and Social Sciences.
    40. Sudipta Sarangi & H. Haller, 2003. "Nash Networks with Heterogeneous Agents," Departmental Working Papers 2003-06, Department of Economics, Louisiana State University.
    41. Emanuele Giovannetti, 2000. "Technology Adoption and the Emergence of Regional Asymmetries," Journal of Industrial Economics, Wiley Blackwell, vol. 48(1), pages 71-102, March.
    42. Jackson, Matthew O. & Watts, Alison, 2002. "The Evolution of Social and Economic Networks," Journal of Economic Theory, Elsevier, vol. 106(2), pages 265-295, October.
    43. Mitsuhiro Kagami & Masatsugu Tsuji & Emanuele Giovannetti (ed.), 2004. "Information Technology Policy and the Digital Divide," Books, Edward Elgar Publishing, number 3114.
    44. Rachel E. Kranton & Deborah F. Minehart, 2001. "A Theory of Buyer-Seller Networks," American Economic Review, American Economic Association, vol. 91(3), pages 485-508, June.
    45. Giovannetti, E., 2003. "‘How Different is Wireless Access? Implications for Internet Mergers," Cambridge Working Papers in Economics 0307, Faculty of Economics, University of Cambridge.
    46. Calvo, Emilio & Lasaga, Javier & van den Nouweland, Anne, 1999. "Values of games with probabilistic graphs," Mathematical Social Sciences, Elsevier, vol. 37(1), pages 79-95, January.
    47. Cremer, Jacques & Rey, Patrick & Tirole, Jean, 2000. "Connectivity in the Commercial Internet," Journal of Industrial Economics, Wiley Blackwell, vol. 48(4), pages 433-472, December.
    48. Filippo VERGARA CAFFARELLI, 2004. "Non-Cooperative Network Formation with Network Maintenance Costs," Economics Working Papers ECO2004/18, European University Institute.
    49. Ionnides, Yannis M, 1990. "Trading Uncertainty and Market Form," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 31(3), pages 619-638, August.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. D'Ignazio, A. & Giovannetti, E., 2006. "Spatial Dispersion of Peering Clusters in the European Internet," Cambridge Working Papers in Economics 0601, Faculty of Economics, University of Cambridge.
    2. Antonelli, Cristiano, 2008. "Pecuniary Externalities: the Convergence of Directed Technological Change and the Emergence of Innovation Systems," Department of Economics and Statistics Cognetti de Martiis LEI & BRICK - Laboratory of Economics of Innovation "Franco Momigliano", Bureau of Research in Innovation, Complexity and Knowledge, Collegio 200807, University of Turin.
    3. Cristiano Antonelli, 2011. "The Economic Complexity of Technological Change: Knowledge Interaction and Path Dependence," Chapters, in: Cristiano Antonelli (ed.), Handbook on the Economic Complexity of Technological Change, chapter 1, Edward Elgar Publishing.
    4. Filippo Vergara Caffarelli, 2009. "Networks with decreasing returns to linking," Temi di discussione (Economic working papers) 734, Bank of Italy, Economic Research and International Relations Area.
    5. Filippo Vergara Caffarelli, 2017. "One-Way Flow Networks with Decreasing Returns to Linking," Dynamic Games and Applications, Springer, vol. 7(2), pages 323-345, June.
    6. D'Ignazio, Alessio & Giovannetti, Emanuele, 2012. "Clustering, connectivity and hierarchies in the internet global supply chain networks," 23rd European Regional ITS Conference, Vienna 2012 60372, International Telecommunications Society (ITS).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Alessio D'Ignazio & Emanuele Giovannetti, 2006. "From Exogenous To Endogenous Economic Networks: Internet Applications," Journal of Economic Surveys, Wiley Blackwell, vol. 20(5), pages 757-796, December.
    2. Matthew O. Jackson, 2003. "A Survey of Models of Network Formation: Stability and Efficiency," Game Theory and Information 0303011, University Library of Munich, Germany.
    3. Matthew O. Jackson, 2002. "The Stability and Efficiency of Economic and Social Networks," Microeconomics 0211011, University Library of Munich, Germany.
    4. Hellmann, Tim & Staudigl, Mathias, 2014. "Evolution of social networks," European Journal of Operational Research, Elsevier, vol. 234(3), pages 583-596.
    5. Sommarat Chantarat & Christopher Barrett, 2012. "Social network capital, economic mobility and poverty traps," The Journal of Economic Inequality, Springer;Society for the Study of Economic Inequality, vol. 10(3), pages 299-342, September.
    6. Dutta, Bhaskar & Ghosal, Sayantan & Ray, Debraj, 2005. "Farsighted network formation," Journal of Economic Theory, Elsevier, vol. 122(2), pages 143-164, June.
    7. Belleflamme,Paul & Peitz,Martin, 2015. "Industrial Organization," Cambridge Books, Cambridge University Press, number 9781107687899.
    8. Joost Vandenbossche & Thomas Demuynck, 2013. "Network Formation with Heterogeneous Agents and Absolute Friction," Computational Economics, Springer;Society for Computational Economics, vol. 42(1), pages 23-45, June.
    9. Yannis M. Ioannides, 2005. "Random Graphs and Social Networks: An Economics Perspective," Discussion Papers Series, Department of Economics, Tufts University 0518, Department of Economics, Tufts University.
    10. Emanuele Giovanetti, 2005. "Diagonal mergers and foreclosure in the internet," Working Papers in Public Economics 80, University of Rome La Sapienza, Department of Economics and Law.
    11. Jean-François Caulier & Ana Mauleon & Vincent Vannetelbosch, 2013. "Contractually stable networks," International Journal of Game Theory, Springer;Game Theory Society, vol. 42(2), pages 483-499, May.
    12. Roland Pongou & Roberto Serrano, 2009. "A Dynamic Theory of Fidelity Networks with an Application to the Spread of HIV/AIDS," Working Papers 2009-2, Brown University, Department of Economics.
    13. Jahn, Eric & Prüfer, Jens, 2008. "Interconnection and competition among asymmetric networks in the Internet backbone market," Information Economics and Policy, Elsevier, vol. 20(3), pages 243-256, September.
    14. Narine Badasyan & Subhadip Chakrabarti, 2004. "Intra-backbone and Inter-backbone Peering Among Internet Service Providers," Microeconomics 0407006, University Library of Munich, Germany.
    15. Goyal, Sanjeev, 2003. "Learning in Networks: a survey," Economics Discussion Papers 9983, University of Essex, Department of Economics.
    16. Gilles, R.P. & Sarangi, S., 2003. "The Role of Trust in Costly Network Formation," Discussion Paper 2003-53, Tilburg University, Center for Economic Research.
    17. Michael Kosfeld, "undated". "Network Experiments," IEW - Working Papers 152, Institute for Empirical Research in Economics - University of Zurich.
    18. Jackson, Matthew O. & Zenou, Yves, 2015. "Games on Networks," Handbook of Game Theory with Economic Applications,, Elsevier.
    19. Lippert, Steffen & Spagnolo, Giancarlo, 2008. "Internet peering as a network of relations," Telecommunications Policy, Elsevier, vol. 32(1), pages 33-49, February.
    20. Carayol, Nicolas & Roux, Pascale, 2005. "Self-organizing Innovation Networks: When do Small Worlds Emerge?," European Journal of Economic and Social Systems, Lavoisier, vol. 18(2), pages 307-332.

    More about this item

    Keywords

    vertical restraints; network formation; Internet; peering;
    All these keywords.

    JEL classification:

    • L42 - Industrial Organization - - Antitrust Issues and Policies - - - Vertical Restraints; Resale Price Maintenance; Quantity Discounts
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation
    • D85 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Network Formation
    • L86 - Industrial Organization - - Industry Studies: Services - - - Information and Internet Services; Computer Software

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:cam:camdae:0445. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Jake Dyer (email available below). General contact details of provider: https://www.econ.cam.ac.uk/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.