Economics of Transport and Network Markets


Course Objective

After successfully following this course, the student can recognize,
understand and analyze societal and business problems in which networks
are central, or play an important role, from the economic perspective.
To that end, the student acquires analytical economic modelling as well
as econometric skills, and can apply these to different types of
networks and network markets: including physical, virtual, technological
and firm networks; and where relevant with a thorough understanding of
differences between ownership of infrastructure and operation of
activities using such infrastructures. The student also understands and
can characterize the differences and similarities between different
types of networks from the economics perspective. The student
understands and can accurately describe the different types of market
failures that are common in network markets, knows the main types of
policy interventions that may address such market failure, and
understands and can apply empirically methods used to evaluate and
compare such policy measures as well as, more generally, different
equilibria that may arise in network markets, e.g. as depending on
degree of competition and ownership arrangements.

Course Content

This course addresses the functioning of network industries from the
economics perspective. The student learns to recognize the impact of
network structures on market demand and supply, and therewith on the
(in-) efficiency of market outcomes and the evaluation of policy
measures addressing these. Market failures and government responses are
studied from the (micro and welfare) economics point of view. The course
considers a variety of real-world network settings including physical
networks, like rail and road transport and aviation,
Internet-facilitated networks such as software and search engines,
innovation networks and networks of R&D collaborating firms.
The following topics are discussed:

Part 1: Advanced Topics in Transportation Networks

1. Network equilibrium and network optimum in congested road networks
2. Second-best pricing and capacity choice for networks; cost-benefit
3. Market power, network choice, mergers and alliances: the economics of
(hub-and-spoke) networks in aviation
4. Regulation and deregulation of network operators and network
suppliers: the case of rail transport
5. Robustness and reliability of networks; the economic values of
unreliability and of information
6. The economics of nodes (ports and freight transport), platforms
(price and product comparison sites) and two-sided markets (the case of
credit cards)

Part 2: Empirics of Firm Networks

1. Econometrics of Interactions in Networks
a. Descriptive Statistics: mean, variance and distributions
b. A Recap of Ordinary Least Squares
i. Simple Linear Regression
ii. Multiple Linear Regression
c. Spatial Autoregressive (SAR) Model
i. Linear Quadratic Utility
ii. Endogeneity of the Spatial Lag
iii. Maximum Likelihood Estimation (MLE)
2. Econometrics of Network Formation
a. Exponential Random Graph Model (ERGM)
b. Conditional Edge-Independence
c. Random Utility Model
d. Logistic Regression
e. Maximum Likelihood Estimation (MLE)
3. An Application to R&D Networks
a. Demand and Cournot Competition
b. R&D Investment and Spillovers
c. Firms' Profits and Market Structure
d. Best Response Function
e. Network Formation
f. Policy Implications

Teaching Methods

The course will consist of 12 lectures and 6 tutorials. The lectures
have the topics identified above. For the tutorials, students will
prepare a critical discussion of an academic (typically journal)
publication on one of the themes covered in the course, and present it.
Each student will act as one presenter of such a presentation, and will
once be a discussant. The tutorials will be scheduled from the end of
week 3 onwards.

Method of Assessment

Written exam (75%)
Assignment: paper presentation and discussion (25%)

Entry Requirements

Basic (100) Microeconomics (such as Fundamentals for Network Analysis
(Economics Module) from period 3.1)


• E. Quinet and R. Vickerman, Principles of Transport Economics, Edward
Elgar, Cheltenham, 2004.
• Kolaczyk, Eric, Statistical Analysis of Network Data: Methods and
Models, Springer, 2009.
• Kolaczyk, Eric and Csárdi, Gábor, Statistical Analysis of Network Data
with R, Springer, 2014.
• Chih-Sheng Hsie, Michael D. König and Xiaodong Liu, “Networks in
Economics: Theory, Econometrics and Policy Implications”, To Appear in
Elsevier and North Holland, Economics and Econometrics Series,
Pre-Publication Draft.
• Lecture notes.

General Information

Course Code E_EBE3_ETNM
Credits 6 EC
Period P2
Course Level 300
Language of Tuition English
Faculty School of Business and Economics
Course Coordinator M.D. Konig
Examiner M.D. Konig
Teaching Staff M.D. Konig
prof. dr. E.T. Verhoef

Practical Information

You cannot register for this course yourself; your faculty's education office carries out registration

Last-minute registration is available for this course.

Teaching Methods Study Group, Lecture
Target audiences

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