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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. Klemperer, Paul, 1987. "Markets with Consumer Switching Costs," The Quarterly Journal of Economics, MIT Press, vol. 102(2), pages 375-94, May.
  2. Mendelson, Haim, 1987. "Consolidation, Fragmentation, and Market Performance," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 22(02), pages 189-207, June.
  3. 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.
  4. Cabral, Luis M. B., 1990. "On the adoption of innovations with 'network' externalities," Mathematical Social Sciences, Elsevier, vol. 19(3), pages 299-308, June.
  5. Salop, Steven C & Scheffman, David T, 1983. "Raising Rivals' Costs," American Economic Review, American Economic Association, vol. 73(2), pages 267-71, May.
  6. 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.
  7. 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.
  8. 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.
  9. 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.
  10. 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.
  11. Beggs, Alan W & Klemperer, Paul, 1992. "Multi-period Competition with Switching Costs," Econometrica, Econometric Society, vol. 60(3), pages 651-66, May.
  12. 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.
  13. Joseph Farrell and Carl Shapiro., 1987. "Optimal Contracts with Lock-In," Economics Working Papers 8758, University of California at Berkeley.
  14. David, Paul A, 1985. "Clio and the Economics of QWERTY," American Economic Review, American Economic Association, vol. 75(2), pages 332-37, May.
  15. Berg, Sanford V., 1988. "Duopoly compatibility standards with partial cooperation and standards leadership," Information Economics and Policy, Elsevier, vol. 3(1), pages 35-53.
  16. 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.
  17. 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.
  18. 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.
  19. 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.
  20. 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.
  21. Katz, Michael L & Shapiro, Carl, 1985. "Network Externalities, Competition, and Compatibility," American Economic Review, American Economic Association, vol. 75(3), pages 424-40, June.
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