IDEAS home Printed from https://ideas.repec.org/p/net/wpaper/0842.html
   My bibliography  Save this paper

Asymmetric Network Effects

Author

Abstract

When platforms compete for consumers, two types of consumer heterogeneity will matter: consumers value the presence of other consumers on a platform differently, and consumers contribute to the value of the platform differently. The optimal discriminatory pricing policy for platforms will depend on whether those two dimensions of consumer heterogeneity are positively or negatively correlated, which is an empirical question. In a companion paper (Cantillon & Yin, 2008), we study membership decisions of trading firms for two competing exchanges: LIFFE and DTB. Our analysis shows that different traders care about liquidity differently. In this paper, we estimate the heterogeneous contribution to liquidity by different types. We combine the estimates from both papers of heterogeneous preferences and contributions to liquidity. We find that valuations of liquidity tend to be correlated with contributions to liquidity in this setting.

Suggested Citation

  • Estelle Cantillon & Pai-Ling Yin, 2008. "Asymmetric Network Effects," Working Papers 08-42, NET Institute.
    • Handle: RePEc:net:wpaper:0842
    as

    Download full text from publisher

    File URL: http://www.netinst.org/Cantillon_Yin_08-42.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Jullien, Bruno, 2001. "Competing with Network Externalities and Price Discrimination," CEPR Discussion Papers 2883, C.E.P.R. Discussion Papers.
    2. Marco Pagano, 1989. "Trading Volume and Asset Liquidity," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 104(2), pages 255-274.
    3. Zvi Griliches & Jacques Mairesse, 1995. "Production Functions: The Search for Identification," NBER Working Papers 5067, National Bureau of Economic Research, Inc.
    4. Gautam Gowrisankaran & Joanna Stavins, 2004. "Network Externalities and Technology Adoption: Lessons from Electronic Payments," RAND Journal of Economics, The RAND Corporation, vol. 35(2), pages 260-276, Summer.
    5. Stephen Ryan & Catherine Tucker, 2012. "Heterogeneity and the dynamics of technology adoption," Quantitative Marketing and Economics (QME), Springer, vol. 10(1), pages 63-109, March.
    6. Biais, Bruno, 1993. "Price Information and Equilibrium Liquidity in Fragmented and Centralized Markets," Journal of Finance, American Finance Association, vol. 48(1), pages 157-185, March.
    7. Greene, William H. & Hensher, David A., 2003. "A latent class model for discrete choice analysis: contrasts with mixed logit," Transportation Research Part B: Methodological, Elsevier, vol. 37(8), pages 681-698, September.
    8. Christensen, Laurits R & Jorgenson, Dale W & Lau, Lawrence J, 1973. "Transcendental Logarithmic Production Frontiers," The Review of Economics and Statistics, MIT Press, vol. 55(1), pages 28-45, February.
    9. Fuss, Melvyn & McFadden, Daniel, 1978. "Production Economics: A Dual Approach to Theory and Applications (II): Applications of the Theory of Production," History of Economic Thought Books, McMaster University Archive for the History of Economic Thought, volume 2, number fuss1978a.
    10. Caves, Douglas W & Christensen, Laurits R, 1980. "Global Properties of Flexible Functional Forms," American Economic Review, American Economic Association, vol. 70(3), pages 422-432, June.
    11. Caillaud, Bernard & Jullien, Bruno, 2003. "Chicken & Egg: Competition among Intermediation Service Providers," RAND Journal of Economics, The RAND Corporation, vol. 34(2), pages 309-328, Summer.
    12. Appelbaum, Elie, 1979. "On the Choice of Functional Forms," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 20(2), pages 449-458, June.
    13. Daniel Ackerberg & Gautam Gowrisankaran, 2006. "Quantifying Equilibrium Network Externalities in the ACH Banking Industry," RAND Journal of Economics, The RAND Corporation, vol. 37(3), pages 738-761, Autumn.
    14. Daniel A. Ackerberg & Gautam Gowrisankaran, 2006. "Quantifying equilibrium network externalities in the ACH banking industry," RAND Journal of Economics, RAND Corporation, vol. 37(3), pages 738-761, September.
    15. Fuss, Melvyn & McFadden, Daniel (ed.), 1978. "Production Economics: A Dual Approach to Theory and Applications," Elsevier Monographs, Elsevier, edition 1, number 9780444850133.
    16. Cantillon, Estelle & Yin, Pai-Ling, 2008. "Competition between Exchanges: Lessons from the Battle of the Bund," CEPR Discussion Papers 6923, C.E.P.R. Discussion Papers.
    17. Fuss, Melvyn & McFadden, Daniel & Mundlak, Yair, 1978. "A Survey of Functional Forms in the Economic Analysis of Production," Histoy of Economic Thought Chapters, in: Fuss, Melvyn & McFadden, Daniel (ed.),Production Economics: A Dual Approach to Theory and Applications, volume 1, chapter 4, McMaster University Archive for the History of Economic Thought.
    18. Peter R. Locke & Asani Sarkar, 2001. "Liquidity supply and volatility: futures market evidence," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 21(1), pages 1-17, January.
    19. Gregory J. Kuserk & Peter R. Locke, 1993. "Scalper behavior in futures markets: An empirical examination," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 13(4), pages 409-431, June.
    20. Fuss, Melvyn & McFadden, Daniel, 1978. "Production Economics: A Dual Approach to Theory and Applications (I): The Theory of Production," History of Economic Thought Books, McMaster University Archive for the History of Economic Thought, volume 1, number fuss1978.
    21. Pollak, Robert A & Sickles, Robin C & Wales, Terence J, 1984. "The CES-Translog: Specification and Estimation of a New Cost Function," The Review of Economics and Statistics, MIT Press, vol. 66(4), pages 602-607, November.
    22. Silber, William L, 1984. "Marketmaker Behavior in an Auction Market: An Analysis of Scalpers in Futures Markets," Journal of Finance, American Finance Association, vol. 39(4), pages 937-953, September.
    23. Berndt, Ernst R & Khaled, Mohammed S, 1979. "Parametric Productivity Measurement and Choice among Flexible Functional Forms," Journal of Political Economy, University of Chicago Press, vol. 87(6), pages 1220-1245, December.
    24. Catherine Tucker, 2008. "Identifying Formal and Informal Influence in Technology Adoption with Network Externalities," Management Science, INFORMS, vol. 54(12), pages 2024-2038, December.
    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. Jullien, Bruno & Pavan, Alessandro & Rysman, Marc, 2021. "Two-sided Markets, Pricing, and Network Effects," TSE Working Papers 21-1238, Toulouse School of Economics (TSE).
    2. Perekhozhuk, Oleksandr, 2007. "Marktstruktur und Preisbildung auf dem ukrainischen Markt für Rohmilch," Studies on the Agricultural and Food Sector in Transition Economies, Leibniz Institute of Agricultural Development in Transition Economies (IAMO), volume 41, number 92322.
    3. Cantillon, Estelle & Yin, Pai-Ling, 2008. "Competition between Exchanges: Lessons from the Battle of the Bund," CEPR Discussion Papers 6923, C.E.P.R. Discussion Papers.
    4. Villezca-Becerra, Pedro A. & Shumway, C. Richard, 1992. "Multiple-Output Production Modeled With Three Functional Forms," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 17(1), pages 1-16, July.
    5. Baccar, Sourour, 1995. "Reliability of the Translog Cost Function : Some Theory & an Application to the Demand of Energy in French Manufacturing," MPRA Paper 53987, University Library of Munich, Germany.
    6. Aguiar, Victor H. & Kashaev, Nail & Allen, Roy, 2023. "Prices, profits, proxies, and production," Journal of Econometrics, Elsevier, vol. 235(2), pages 666-693.
    7. Sauer, J., 2007. "Monotonicity and Curvature – A Bootstrapping Approach," Proceedings “Schriften der Gesellschaft für Wirtschafts- und Sozialwissenschaften des Landbaues e.V.”, German Association of Agricultural Economists (GEWISOLA), vol. 42, March.
    8. Brown, Bryan W. & Walker, Mary Beth, 1995. "Stochastic specification in random production models of cost-minimizing firms," Journal of Econometrics, Elsevier, vol. 66(1-2), pages 175-205.
    9. Thomas P. Triebs & David S. Saal & Pablo Arocena & Subal C. Kumbhakar, 2016. "Estimating economies of scale and scope with flexible technology," Journal of Productivity Analysis, Springer, vol. 45(2), pages 173-186, April.
    10. repec:hal:spmain:info:hdl:2441/2041 is not listed on IDEAS
    11. Gabriele Dono & Luca Giraldo & Simone Severini, 2012. "The Cost of Irrigation Water Delivery: An Attempt to Reconcile the Concepts of Cost and Efficiency," Water Resources Management: An International Journal, Published for the European Water Resources Association (EWRA), Springer;European Water Resources Association (EWRA), vol. 26(7), pages 1865-1877, May.
    12. Anusua Datta & Susan Christoffersen, 2005. "Production Costs, Scale Economies, and Technical Change in U.S. Textile and Apparel Industries," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 33(2), pages 201-213, June.
    13. Florian Pelgrin & Arnaud Sylvain & Eric Heyer, 2004. "Capital operating time and working time in the production function : an evaluation on a panel firms over the period 1989-2001," SciencePo Working papers Main hal-00972838, HAL.
    14. Stefan Profit & Stefan Sperlich, 2004. "Non-uniformity of job-matching in a transition economy - A nonparametric analysis for the Czech Republic," Applied Economics, Taylor & Francis Journals, vol. 36(7), pages 695-714.
    15. Konstantinos Giannakas & K. Tran & Vangelis Tzouvelekas, 1999. "On the Choice of Functional Form in Stochastic Frontiers Models: A Box-Cox Approach," Working Papers 9915, University of Crete, Department of Economics.
    16. Sauer, Johannes, 2006. "Monotonicity And Curvature - A Bootstrapping Approach," 46th Annual Conference, Giessen, Germany, October 4-6, 2006 14948, German Association of Agricultural Economists (GEWISOLA).
    17. Marc Gaudry & Emile Quinet, 2009. "Track wear-and-tear cost by traffic class: Functional form, zero output levels and marginal cost pricing recovery on the French rail network," Working Papers halshs-00574977, HAL.
    18. Hamermesh, Daniel S., 1987. "The demand for labor in the long run," Handbook of Labor Economics, in: O. Ashenfelter & R. Layard (ed.), Handbook of Labor Economics, edition 1, volume 1, chapter 8, pages 429-471, Elsevier.
    19. Richard Fabling & David C Maré, 2015. "Production function estimation using New Zealand’s Longitudinal Business Database," Working Papers 15_15, Motu Economic and Public Policy Research.
    20. repec:spo:wpecon:info:hdl:2441/2041 is not listed on IDEAS
    21. repec:hal:wpspec:info:hdl:2441/2041 is not listed on IDEAS
    22. repec:spo:wpmain:info:hdl:2441/2041 is not listed on IDEAS
    23. Eric Heyer & Florian Pelgrin & Arnaud Sylvain, 2004. "Capital Operating Time and Working Time in the Production Function: An Evaluation on a Panel of French Firms over the Period 1989-2001," Documents de Travail de l'OFCE 2004-09, Observatoire Francais des Conjonctures Economiques (OFCE).
    24. repec:eee:labchp:v:1:y:1986:i:c:p:429-471 is not listed on IDEAS
    25. Fulginiti, Lilyan E., 2001. "Griliches' K-Shift And Competitiveness: Commodity Progress In Us Agriculture," 2001 Annual meeting, August 5-8, Chicago, IL 20700, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).

    More about this item

    Keywords

    derivatives exchange; network effects; heterogeneity; entry strategy; adoption; liquidity; platform competition;
    All these keywords.

    JEL classification:

    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

    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:net:wpaper:0842. 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: Nicholas Economides (email available below). General contact details of provider: http://www.NETinst.org/ .

    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.