ESSAYS ON ECONOMICS OF NETWORKS

Author:

Jung, Soomin

Graduate Program:

Economics

Degree:

Doctor of Philosophy

Document Type:

Dissertation

Date of Defense:

May 03, 2021

Committee Members:

Sona Golder, Outside Unit & Field Member
Syed Ali, Major Field Member
Vijay Krishna, Major Field Member
Kalyan Chatterjee, Chair & Dissertation Advisor
Marc Henry, Program Head/Chair

Keywords:

Network
bargaining
word of mouth
networked market

Abstract:

This dissertation is on economics of networks. The first two chapters study what network sellers and buyers create when there exist gains of trade. The last chapter studies information diffusion on a given network. In the first two chapters, I study sellers and buyers who trade via bargaining. Agents can often increase their bargaining power by increasing the value of their outside options. They may seek to invest in costly relationships with potential trade partners. That is, they form an endogenous trade network and then bargain with their trade partners. I study a two-stage model in which sellers and buyers trade non-cooperatively on an endogenous trade network. In Chapter 1, sellers are assumed to have no capacity constraints. The main result of this chapter is that even though agents can increase their bargaining power by forming relationships with multiple trading partners, there exists an efficient subgame perfect equilibrium–that is, all the gains from trade are realized with the minimum costs and without a delay. Chapter 2 assumes that sellers are endowed with one unit of a good for a trade following the tradition of the bargaining literature. The capacity constraint increases the seller's bargaining power if there are many buyers who want to buy a good from each seller. This may give incentives to sellers to invest in superfluous links. Chapter 2 shows that the market can achieve efficiency even if sellers have the capacity constraint. In specific, a bilateral trading network is supported as an equilibrium network. Chapter 3 studies information diffusion on a fixed network through word-of-mouth. Word-of-mouth is an effective tool that a firm leverages to advertise the quality of its products to uninformed consumers. Such viral marketing, however, may fail if the consumers' "words" are not credible. Suppose that consumers are located on a given network and a firm "buys" one consumer and employs her as an implant to make recommendations of a product to her neighbors regardless of the actual quality of the good. I show that the viral marketing fails if the consumer network has a node with an excessively high degree of connection–for instance, a star network or a complete network–which undermines the credibility of the recommendation from an implant employed by a firm to promote a bad quality product. Also, if the viral marketing works, a good quality product is spread out over the network while a bad quality is driven out.