A Short Survey of Network Economics

Shy, Oz. “A short survey of network economics." Review of Industrial Organization 38.2 (2011): 119-149.


This article surveys a variety of topics that are related to network economics. Topics covered include: consumer demand under network effects, compatibility decisions and standardization, technology advances in network industries, two-sided markets, information networks and intellectual property, and social influence.


Survey Network economics Network industries Network effects Network externalities

JEL Classification

D4 L1 L8 Z1


The Evolution of Cooperation in Infinitely Repeated Games: Experimental Evidence

Dal Bó, Pedro ; Fréchette, Guillaume R. (2011) “The Evolution of Cooperation in Infinitely Repeated Games: Experimental Evidence." The American Economic Review, Volume 101, Number 1, February 2011 , pp. 411-429(19). DOI: http://dx.doi.org/10.1257/aer.101.1.411;brown.edu 提供的 [PDF] ; Download Data Set (355.92 KB) | Online Appendix (284.08 KB);

==notes by yinung==

此文用的 PD game,進行無限重覆賽局的實驗。see also 另一篇也在 AER 2005 年刊出的和有限重覆 PD game 之比較(或參目本站的另一篇 note)。

          合作     背叛
 合作    (R, R)   (12, 50)
 背叛    (50,12)  (25, 25)
繼續玩之機率:1/2, 3/4


The 18 experimental sessions were conducted between July 2005 and March 2006. A total of 266 New York University undergraduates participated in the experiment, with an average of 14.78 subjects per session, a maximum of 20 and a minimum of 12. The subjects earned an average of $25.95, with a maximum of $42.93 and a minimum of $16.29. In the treatments with δ =
1/2 and δ = 3/4 the average number of rounds per match was 1.96 and 4.42 respectively, and the maximum was nine and 23 respectively.


…each subject participated in between 23 and 77 infinitely repeated games

…Previous experimental evidence has shown that subjects often fail to coordinate on a specific equilibrium when they play a small number of infinitely repeated games



…the level of cooperation decreases with experience and converges to low levels

…the level of cooperation does not necessarily increase and may remain at low levels even after significant experience is obtained.

…this evidence suggests that while being an equilibrium action may be a necessary condition for cooperation to arise with experience, it is not sufficient.

若 cooperation 是 risk dominant, 則合作隨著經驗增加而上升

If we consider together all sessions for which cooperation is risk dominant, we find that cooperation increases on average as subjects gain experience….Risk dominance has been used as a selection criterion in the study of coordination games.


…These results show how difficult it is for experienced subjects to sustain high levels of cooperation. They cast doubt on the common assumption that agents will make the most of the opportunity to cooperate whenever it is possible to do so in equilibrium.

…In fact the impact of repetition on rates of cooperation was rather modest, leading Roth to conclude that the results are equivocal (Roth 1995). (註:這些結果皆來自於隨機結束的賽局 randomly terminated game. All of these papers used games with a randomly determined length.)


A usual criticism of the theory of infinitely repeated games is that it does not provide sharp predictions since there may be a multiplicity of equilibria. To address this issue, we present experimental evidence on the evolution of cooperation in infinitely repeated prisoner’s dilemma games as subjects gain experience. We show that cooperation may prevail in infinitely repeated games, but the conditions under which this occurs are more stringent than the subgame perfect conditions usually considered or even a condition based on risk dominance.


  • Bereby-Meyer,Yoella, and Alvin E. Roth. 2006. “The Speed of Learning in Noisy Games: Partial Re-inforcement and the Sustainability of Cooperation.” American Economic Review, 96(4): 1029–42.
  • Dal Bó, Pedro. 2005. “Cooperation under the Shadow of the Future: Experimental Evidence from Infinitely Repeated Games.”American Economic Review, 95(5): 1591–1604.
    這篇比較無限和有限重覆 PD game, 發現無限重覆賽局,在同樣條件下會有較高的合作率

    [this paper] compares infinitely repeated and finitely repeated prisoner’s dilemma games of the same expected length and finds that cooperation is larger in the former as theory predicts.
  • Dal Bó, Pedro. 2007. “Tacit Collusion under Interest Rate Fluctuations.” RAND Journal of Economics, 38(2): 533–40.

Licensing Strategies in the Presence of Patent Thickets

Lihui Lin (2011) “Licensing Strategies in the Presence of Patent Thickets."Journal of Product Innovation Management, Volume 28, Issue 5, pages 698–725, September 2011. DOI: 10.1111/j.1540-5885.2011.00835.x. link to Wiley;;;

Notes by yinung

本文之理論模型是以 2-stage, backward-induction 的方式來推理,其模型之數學形式,可供參考。

文獻上未討論不同 licensing contracts 對 patent thickets, royalty stacking, double marginalization 之影響。

賽局理論模型; 研究下游廠商向上游尋求 N 個 licenses 授權, 其討論 5 種 licensing contract 如下:

  • Quantity-Based Royalty Licenses

下游每單位 output 授權費 u

  • Downstream firm with no bargaining power
    上游完全決定 u (given 下游只能全盤接受, 在本文中稱之 researvation payoff = 0)
  • Downstream firm with any reservation payoff
    上游只要選一個 u 使下游的 payoffs >= reservation payoffs 即可;故下游 bargaining power 會大,則 u 會愈小
  • Revenue-Based Royalty Licenses (by Goldscheider, 1995)
上游向下游收取 r 比例之收入為授權費
  • Profit-Based Royalty Licenses

the price of the final product is independent of the royalty rate and the distribution of bargaining power.

  • Fixed-Fee Licenses

just like a profit-based royalty license, the price of the downstream product is not distorted by upstream costs.

  • Hybrid Licenses: Royalty plus Fixed Fee

some keywords:

patent thickets

royalty stacking

double marginalization


the introduction of a new product or service often requires many complementary technologies


Many key industries (e.g., biomedical, pharmaceuticals, telecommunications, and information technologies) are characterized by cumulative innovations, where the introduction of a new product or service often requires many complementary technologies. When these technologies are protected by intellectual property rights owned by many firms, patent thickets exist, which researchers have argued may hinder the development of cumulative innovations. Specifically, patent thickets may lead to excessive royalty burdens for potential licensees, which is called “royalty stacking,” and if such costs are passed on to consumers, prices of products based on cumulative technologies will be driven up, dubbed as “double marginalization.” The literature, however, does not address these issues under different forms of licensing contracts.

This article develops a game-theoretic model where a downstream firm seeks to license N patents that read on its product from upstream firms. It discusses a variety of licensing forms widely used in practice and attempts to discover whether royalty stacking and double marginalization occur under these forms of licenses. It also studies the impact of bargaining power between parties. It is found that when patent ownership becomes more fragmented, neither royalty stacking nor double marginalization occurs under profit-based royalty, fixed fee, and hybrid licenses. Such problems occur only under pure quantity-based or pure revenue-based royalty licenses when the downstream firm’s bargaining power is low. It is also shown that no matter how fragmented the ownership structure of patent is, hybrid licenses consisting of a fixed fee and a quantity- or revenue-based royalty rate lead to the same market outcomes as a fully integrated firm that owns all the patents and the downstream market.

This article has interesting implications for both research and practice. First, the results show that even under the same patent ownership structure, different forms of licenses lead to quite different market outcomes. Therefore, it is suggested that firms and policy makers pay more attention to contractual forms of licenses when trying to minimize the negative impact of patent thickets. Second, the extant literature has largely assumed that quantity-based royalties are used, where double marginalization is the most severe. In practice, revenue-based royalties are most common, under which double marginalization is much milder. Third, the results show that patent pools can be most effective in mitigating royalty stacking and double marginalization when quantity-based or revenue-based royalties are the sole or primary payment form, especially when downstream firms have low bargaining power.


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Sabotage in Tournaments: Evidence from a Laboratory Experiment

yinung: 哈哈… 怠工 (工作偷懶) 行為被標籤化, 可以降低怠工?
Christine Harbring and Bernd Irlenbusch (2011) “Sabotage in Tournaments: Evidence from a Laboratory Experiment," Management Science, 57, 4 :611-627.; DOI: 10.1287/mnsc.1100.1296 ; (full PDF)

==original Abstract==

Although relative performance schemes are pervasive in organizations, reliable empirical data on induced sabotage behavior are almost nonexistent. We study sabotage (怠工,破壞活動,破壞(vi.)從事破壞活動(vt.)妨害,破壞) in repeated tournaments in a controlled laboratory experiment and observe that effort and sabotage are higher for higher wage spreads. Additionally, we find that also in the presence of tournament incentives, agents react reciprocally to higher wages by exerting higher effort. Destructive activities are reduced by explicitly calling them by their name “sabotage.” Communication among principal and agents can curb sabotage when they agree on flat prize structures and increased output. If sabotage is not possible, the principals choose tournament incentives more often.

 ==cited by==

(2012) “Competition Between Organizational Groups: Its Impact on Altruistic and Antisocial Motivations." Management Science May 2012 vol. 58 no. 5 948-960.

 ==maybe related==

Technology adoption in markets with network effects: Theory and experimental evidence

Keser, Claudia, Suleymanova, Irina, and  Wey, Christian (2011) “Technology adoption in markets with network effects: Theory and experimental evidence." DICE discussion paper No. 33, Germany. link to PDF

Date: 2011
By: Keser, Claudia
Suleymanova, Irina
Wey, Christian
URL: http://d.repec.org/n?u=RePEc:zbw:dicedp:33&r=net
We examine a technology adoption game with network effects in which coordination on technology A and technology B constitute a Nash equilibrium. Coordination on technology B is assumed to be payoff-dominant. We define a technology’s critical mass as the minimum share of users necessary to make the choice of this technology a best response for any remaining user. We show that the technology with a lower critical mass is risk-dominant and is chosen by the maximin criterion. We present experimental evidence that both pay-off dominance and risk dominance explain participants’ choices. The relative riskiness of a technology can be proxied using technologies’ critical masses or stand-alone values. —
Keywords: Network Effects,Critical Mass,Coordination,Riskiness
JEL: C72

Select Papers for nep-net.

League-Table Incentives and Price Bubbles in Experimental Asset Markets

Date: 2011-05
By: Cheung, Stephen L. (University of Sydney)
Coleman, Andrew (University of Sydney)
URL: http://d.repec.org/n?u=RePEc:iza:izadps:dp5704&r=net
We study experimental markets in which participants face incentives modeled upon those prevailing in markets for managed funds. Each participant’s portfolio is periodically evaluated at market value and ranked in a league table according to short-term paper returns. Those who rank highly attract a larger share of new fund inflows. Under conditions in which prices are close to intrinsic value, the effect of incentives is mild. However under conditions in which markets are prone to bubble, mispricing is greatly exacerbated by incentives. Even in experienced markets, prices climb to levels clearly indicative of speculation and do not always crash back.
Keywords: league tables, price bubbles, managed funds markets, tournament incentives, asset market experiments
JEL: C92

Summary by Yi-Nung (2011.12.31)


本文研究 “排行機制" 是否會使資產泡沫的情形更嚴重

…whether league-table incentives may contribute to the perpetuation of price bubbles in asset markets.
(p.5) … for league-table incentives to amplify price distortions in these markets


Such an event, and any ensuing crash back to intrinsic value, can have adverse consequences for the efficient allocation of capital, as well as distorting the distribution of wealth and propagating instability throughout the economy. For these reasons, the factors that contribute to the severity of price bubbles are of interest to policy makers and regulators.

為何要用實驗來研究 asset bubble 問題之原因:

an inherent difficulty of studying price bubbles using historical data is that an asset’s true intrinsic value is not observable even in retrospect. Thus any empirical assessment of a price bubble is necessarily contingent upon assumptions that must be made with regard to intrinsic value, leading to the possibility of specification error. As a result, there is always scope for disagreement over whether any given historical episode indeed constitutes a price bubble.

… a further challenge for empirical research is that the incentives facing market participants may be endogenous to the performance of the market under consideration, may differ between participants within a given market, and may in any case not be observable to the researcher.


… design of our experiments is based upon canonical studies by Smith, Suchanek and Williams (1988)(PDF) and Noussair, Robin and Ruffieux (2001)(PDF).


Baseline:                每人獲得每段期間 “與績效無關之" 固定報酬,
競賽 tournament: 每人獲得每段期間 “以帳面價值成長率為績效" 之報酬 (league-table incentives, 或 tournament incentives (James and Isaac. 2000, AER))
其它變因: experience in repeated markets, 不同的 market intrinsic value

In our baseline experiments, each trader receives identical periodic bonuses irrespective of their performance. These bonuses model the inflow of new funds under management, and in the baseline they do not vary as a function of relative performance. Thus under the baseline, a trader’s earnings depend only upon the intrinsic value of their holdings at the conclusion of the market. In our tournament condition, we introduce league-table incentives by allocating bonuses on the basis of each trader’s relative performance, as measured by the recent growth in the paper value of their portfolio. Once again, final earnings are assessed at intrinsic value; however the measure of return that is used to construct the league table is based upon market price. In this manner, we induce a tension between the pursuit of long-run and short-run measures of value under the tournament.


1. 在固定報酬值的環境下, 有價格泡沫; 但相對於遞減報酬值的環境下, 價格泡沫較小
In the constant-value environment with baseline incentives, we again observe that prices deviate somewhat above intrinsic value in inexperienced markets. However, and again consistent with previous research, these deviations are mild compared to what we observe in the declining-value environment.
2. 在固定報酬值的環境下且有經驗的市場中, 價格泡沫現象幾乎沒有
Moreover, in experienced markets with baseline incentives, prices track intrinsic value almost perfectly.
3. league-table incentive 下價格泡沫情況更趨嚴重
… confirms the potential for league-table incentives to amplify price distortions in these markets


資產泡沫的定義: (p.3)

A bubble in asset prices has been defined as “trade in high volumes at prices that are considerably at variance from intrinsic value” (King et al 1993, p.183).


James, D., R.M. Isaac. 2000. Asset markets: How are they affected by tournament incentives for individuals. American Economic Review. 90(4) 995–1004. [jstor.org提PDF]

這篇描述操作績效高於市場者, 其薪酬與績文呈正比; 但其它人則獲 flat rate 之薪酬