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SUMMARY:Positive Externalities\, Negative Externalities\, and Optimal Scal
 e - Ramesh Johari (Stanford)
DTSTART:20071114T140000Z
DTEND:20071114T150000Z
UID:TALK8607@talks.cam.ac.uk
CONTACT:Speaker to be confirmed
DESCRIPTION:We study a system where many identical customers use a single 
 service. Each customer experiences both positive externalities (a positive
  "network effect") and negative externalities (a "congestion effect") from
  other customers using the service. Such a model arises frequently in prac
 tice: application services on wireless networks\, peer-to-peer networks\, 
 and social networks are examples. We characterize the social optimum\, whe
 re a social planner determines the usage level of each customer. We also c
 haracterize the Nash equilibrium achieved when the usage levels are determ
 ined by the customers themselves\, in their self-interest. We study the ra
 tio of the welfare in Nash equilibrium to that in the social optimum. We d
 emonstrate that there is an *optimal scale*\, i.e.\, a number of customers
  at which this ratio is maximized\; further\, the optimal ratio is unity. 
 We also show that this same optimal scale maximizes the Nash welfare of a 
 single individual. We interpret our results in terms of club formation\, a
 nd study the size of the club as the impact of the positive externality gr
 ows. \nJoint work with Sunil Kumar\, Stanford GSB. \n
LOCATION:MR12\, CMS\, Wilberforce Road\, Cambridge\, CB3 0WB
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