Volume 13, Issue 2

This paper first investigates empirically the relationship between risk aversion and social network structure in a large group of undergraduate students. We find that risk aversion is strongly correlated to local network clustering, that is, the probability that one has a social tie to friends of friends. We then propose a network formation model that generates this empirical finding, suggesting that locally superior information on benefits makes it more attractive for risk averse individuals to link to friends of friends. Finally, we discuss implications of this model. The model generates a positive correlation between local network clustering and benefits, even if benefits are distributed independently ex ante. This provides an alternative explanation of this relationship to the one given by the social capital literature. We also establish a linkage between the uncertainty of the environment and the network structure: risky environments generate more clustered and more unequal networks in terms of connectivity.

Commercial ceilings not only restrict broadcasters in their decisions about commercial broadcasting time, but also affect their differentiation of program content. This study examines the welfare effects of commercial ceilings in a two-sided free-to-air TV market, taking into account welfare with respect to content differentiation. We identify a second-best commercial ceiling that maximizes welfare in the absence of enforceable program content regulation and identify the situations in which laissez faire is optimal. The deregulation of commercial broadcasting can improve welfare, even if the laissez-faire level of commercial broadcasting time is excessive.

In this paper, we analyze the impact of cooperation on R&D investments in a two-sided market, where platforms compete in quantities. We show that if indirect externalities are of a moderate magnitude, the threshold degree of spillovers above which cooperation spurs R&D investments and enhances social welfare increases with the degree of externalities. If indirect externalities are of a strong magnitude, cooperation can also be beneficial in terms of welfare for low degrees of spillovers.

In this paper we analyze how firms’ R&D investment decisions, firms’ profits and social welfare are affected by absorptive capacity; that is, the ability of a firm to learn from other collaborating firms. The model developed is a strategic regular network where firms have the opportunity to form pair-wise collaborative links with other firms and then compete à la Cournot. Different to the existing literature, we find that firms’ R&D efforts could increase or decrease with the degree of the network, depending on the level of absorptive capacity, the market size and the network dimension. In particular, in the case of small market size and low learning effect, the connection between firms drives up research investments. Moreover, if absorptive capacity is sufficiently low, the research collaboration between firms turns out not to be desirable from a private point of view while, in line with the existing literature, social efficiency requires a complete or intermediate level of collaborative activity. We also show that the complete network is pair-wise stable and socially optimal for an intermediate level of spillover intensity, while the empty network maximizes firms’ profits when absorptive capacity is small, yet it is not pair-wise stable.