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Network Economics with Application to Finance

  • Nicholas Economides

    ()

    (New York University, NY 10012-1126., Stern School of Business)

Networks are common in financial services. Perfect competition does not decentralize optimality on a network, and coordination of participants expectations and investments is crucial for success. Financial exchange networks exhibit two kinds of externalities: liquidity enhancement by size expansion, and underpriced provision of market price information to outside rivals. We discuss the interaction of these externalities in alternative exchange network structures.

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File URL: http://raven.stern.nyu.edu/networks/fmii93ps.zip
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Paper provided by Economics of Networks in its series Financial Networks with number _004.

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Handle: RePEc:wop:ennefn:_004
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  1. Cabral, Luis M. B., 1990. "On the adoption of innovations with 'network' externalities," Mathematical Social Sciences, Elsevier, vol. 19(3), pages 299-308, June.
  2. Beggs, Alan W & Klemperer, Paul, 1992. "Multi-period Competition with Switching Costs," Econometrica, Econometric Society, vol. 60(3), pages 651-66, May.
  3. Nicholas Economides, 1992. "Network Externalities and Invitations to Enter," Working Papers 92-2, New York University, Leonard N. Stern School of Business, Department of Economics.
  4. Katz, Michael L & Shapiro, Carl, 1986. "Technology Adoption in the Presence of Network Externalities," Journal of Political Economy, University of Chicago Press, vol. 94(4), pages 822-41, August.
  5. Garbade, Kenneth D & Silber, William L, 1976. "Price Dispersion in the Government Securities Market," Journal of Political Economy, University of Chicago Press, vol. 84(4), pages 721-40, August.
  6. Katz, Michael L & Shapiro, Carl, 1985. "Network Externalities, Competition, and Compatibility," American Economic Review, American Economic Association, vol. 75(3), pages 424-40, June.
  7. Nicholas Economides & Robert A. Schwartz, 1993. "Electronic Call Market Trading," Working Papers 93-19, New York University, Leonard N. Stern School of Business, Department of Economics.
  8. Farrell, Joseph & Shapiro, Carl, 1987. "Optimal Contracts with Lock-In," Department of Economics, Working Paper Series qt19f324hf, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
  9. Katz, Michael L & Shapiro, Carl, 1986. "Product Compatibility Choice in a Market with Technological Progress," Oxford Economic Papers, Oxford University Press, vol. 38(0), pages 146-65, Suppl. No.
  10. Berg, Sanford V., 1988. "Duopoly compatibility standards with partial cooperation and standards leadership," Information Economics and Policy, Elsevier, vol. 3(1), pages 35-53.
  11. Amihud, Yakov & Mendelson, Haim, 1987. " Trading Mechanisms and Stock Returns: An Empirical Investigation," Journal of Finance, American Finance Association, vol. 42(3), pages 533-53, July.
  12. Klemperer, Paul, 1987. "Markets with Consumer Switching Costs," The Quarterly Journal of Economics, MIT Press, vol. 102(2), pages 375-94, May.
  13. Liebowitz, S J & Margolis, Stephen E, 1990. "The Fable of the Keys," Journal of Law and Economics, University of Chicago Press, vol. 33(1), pages 1-25, April.
  14. Economides, Nicholas, 1989. "Desirability of Compatibility in the Absence of Network Externalities," American Economic Review, American Economic Association, vol. 79(5), pages 1165-81, December.
  15. Gallini, Nancy & Karp, Larry S, 1989. "Sales and Consumer Lock-In," Economica, London School of Economics and Political Science, vol. 56(223), pages 279-94, August.
  16. Nicholas Economides & Lawrence J. White, 1993. "One-Way Networks, Two-Way Networks, Compatibility, and Antitrust," Working Papers 93-14, New York University, Leonard N. Stern School of Business, Department of Economics.
  17. Mendelson, Haim, 1987. "Consolidation, Fragmentation, and Market Performance," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 22(02), pages 189-207, June.
  18. Arthur, W Brian, 1989. "Competing Technologies, Increasing Returns, and Lock-In by Historical Events," Economic Journal, Royal Economic Society, vol. 99(394), pages 116-31, March.
  19. Salop, Steven C & Scheffman, David T, 1983. "Raising Rivals' Costs," American Economic Review, American Economic Association, vol. 73(2), pages 267-71, May.
  20. David, Paul A, 1985. "Clio and the Economics of QWERTY," American Economic Review, American Economic Association, vol. 75(2), pages 332-37, May.
  21. Garbade, Kenneth D & Silber, William L, 1979. "Structural Organization of Secondary Markets: Clearing Frequency, Dealer Activity and Liquidity Risk," Journal of Finance, American Finance Association, vol. 34(3), pages 577-93, June.
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