IDEAS home Printed from https://ideas.repec.org/p/pra/mprapa/8487.html

The evolution of a global network: a game of coalition formation

Author

Listed:
  • Chichilnisky, Graciela

Abstract

The paper explores the evolution of global networks. Examples include networks which process cross-border securities trades: CEDEL, Euroclear, and FITEL. I formalize a network market with many users: due to fixed costs the supply is downward slopping, and due to externalities the demand is upward slopping. Using game theory and dynamic stochastic analysis I show how the network evolves. I introduce the concept of critical mass, define a stochastic process of coalition formation, and specify the long run properties of the resulting network markets, including dynamics and stability properties, and the number of stable configurations. I explain the formation of coalitions of users when the players are heterogeneous: there exist clusters of players which produce more externalities to each other that they do the rest: e.g. global custodians. The gains from distinguishing such clusters are surprisingly large: the probability of success of the network "star-up" increases exponentially with decreases in the cluster size.

Suggested Citation

  • Chichilnisky, Graciela, 1995. "The evolution of a global network: a game of coalition formation," MPRA Paper 8487, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:8487
    as

    Download full text from publisher

    File URL: https://mpra.ub.uni-muenchen.de/8487/1/MPRA_paper_8487.pdf
    File Function: original version
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Joseph Farrell & Garth Saloner, 1985. "Standardization, Compatibility, and Innovation," RAND Journal of Economics, The RAND Corporation, vol. 16(1), pages 70-83, Spring.
    2. Katz, Michael L & Shapiro, Carl, 1985. "Network Externalities, Competition, and Compatibility," American Economic Review, American Economic Association, vol. 75(3), pages 424-440, June.
    3. Shmuel S. Oren & Stephen A. Smith, 1981. "Critical Mass and Tariff Structure in Electronic Communications Markets," Bell Journal of Economics, The RAND Corporation, vol. 12(2), pages 467-487, Autumn.
    Full references (including those not matched with items on IDEAS)

    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. Hahn, Jong-Hee, 2003. "Nonlinear pricing of telecommunications with call and network externalities," International Journal of Industrial Organization, Elsevier, vol. 21(7), pages 949-967, September.
    2. Schade, Sven & Buxmann, Peter, 2005. "A Prototype to Analyse and Support Standardization Decisions," Publications of Darmstadt Technical University, Institute for Business Studies (BWL) 35795, Darmstadt Technical University, Department of Business Administration, Economics and Law, Institute for Business Studies (BWL).
    3. Funk, Jeffrey L. & Methe, David T., 2001. "Market- and committee-based mechanisms in the creation and diffusion of global industry standards: the case of mobile communication," Research Policy, Elsevier, vol. 30(4), pages 589-610, April.
    4. Jayakrishnan Nair & Adam Wierman & Bert Zwart, 2016. "Provisioning of Large-Scale Systems: The Interplay Between Network Effects and Strategic Behavior in the User Base," Management Science, INFORMS, vol. 62(6), pages 1830-1841, June.
    5. Nicholas Economides, 1997. "The Economics of Networks," Brazilian Electronic Journal of Economics, Department of Economics, Universidade Federal de Pernambuco, vol. 1(0), December.
    6. Economides, Nicholas, 1996. "Network externalities, complementarities, and invitations to enter," European Journal of Political Economy, Elsevier, vol. 12(2), pages 211-233, September.
    7. Oz Shy, 2011. "A Short Survey of Network Economics," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 38(2), pages 119-149, March.
    8. Funk, Jeffrey L., 2003. "Standards, dominant designs and preferential acquisition of complementary assets through slight information advantages," Research Policy, Elsevier, vol. 32(8), pages 1325-1341, September.
    9. Stefan Mai, 2002. "International co-ordination of e-commerce," IWP Discussion Paper Series 03/2002, Institute for Economic Policy, Cologne, Germany.
    10. Dementiev, V. & Evsukov, S. & Ustyuzhanina, E., 2020. "The importance of a strategic approach to pricing in markets for network goods," Journal of the New Economic Association, New Economic Association, vol. 46(2), pages 57-71.
    11. María Fernanda Viecens, 2009. "Compatibility with Firm Dominance," Working Papers 2009-12, FEDEA.
    12. Mitomo, Hitoshi, 2017. "Data Network Effects: Implications for Data Business," 28th European Regional ITS Conference, Passau 2017 169484, International Telecommunications Society (ITS).
    13. Mileva, Elitza & Siegfried, Nikolaus, 2012. "Oil market structure, network effects and the choice of currency for oil invoicing," Energy Policy, Elsevier, vol. 44(C), pages 385-394.
    14. Howell, Bronwyn, 2006. "Unveiling 'Invisible Hands': Two-Sided Platforms in Health Care Markets," Working Paper Series 18936, Victoria University of Wellington, The New Zealand Institute for the Study of Competition and Regulation.
    15. Ostrizek, Franz & Sartori, Elia, 2023. "Screening while controlling an externality," Games and Economic Behavior, Elsevier, vol. 139(C), pages 26-55.
    16. Ciccotello, Conrad S & Hornyak, Martin J & Piwowar, Michael S, 2004. "Research and Development Alliances: Evidence from a Federal Contracts Repository," Journal of Law and Economics, University of Chicago Press, vol. 47(1), pages 123-166, April.
    17. Jullien, Bruno, 2001. "Competing with Network Externalities and Price Discrimination," CEPR Discussion Papers 2883, C.E.P.R. Discussion Papers.
    18. Howell, Bronwyn, 2006. "Unveiling 'Invisible Hands': Two-Sided Platforms in Health Care Markets," Working Paper Series 3841, Victoria University of Wellington, The New Zealand Institute for the Study of Competition and Regulation.
    19. Shy, O. & Chou, C-F., 1990. "Do Consumers Always Gain When More People Buy The Same Brand?," Papers 40-90, Tel Aviv.
    20. Snellman, Heli, 2006. "Automated teller machine network market structure and cash usage," Bank of Finland Scientific Monographs, Bank of Finland, volume 0, number sm2006_038, December.

    More about this item

    Keywords

    ;
    ;
    ;
    ;
    ;
    ;

    JEL classification:

    • F3 - International Economics - - International Finance
    • D85 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Network Formation

    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:pra:mprapa:8487. 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: Joachim Winter (email available below). General contact details of provider: https://edirc.repec.org/data/vfmunde.html .

    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.