Essays on network effects in international trade and markets for differentiated goods

The ways in which economic parties relate to one another often have a considerable impact on their economic decision making. This work seeks to better explain the multitude of ways in which these network effects influence outcomes within international trade and differentiated product markets. The first chapter studies the role of network relationships in international trade over time. Prior research has established that the trade of differentiated goods relies more heavily on network relationships such as short distances, shared borders, and cultural links than the trade of homogeneous goods. The research presented here builds on this observation by showing that this difference is dependent on the length of time a product has traded. The marginal impact of a network relationship varies over the lifespan of a product and the differences observed between differentiated and homogeneous goods are well pronounced for new products but diminish over time. The second chapter proposes the use of exponential random graph modeling (ERGM) to study world trade flows. By extending this methodology to international trade, the structure of the trade network and the extensive dependencies within it can be more precisely analyzed. Estimations of ERGM models using bilateral trade data indicate that these typically overlooked network dependencies represent significant trade determinants. The third chapter studies competitive firm level decisions to produce multiple differentiated versions of a product when that product generates a network externality. A game-theoretic model is proposed according to these specifications and the existence of an equilibrium is established. Using a stylized version of the model in which firms may offer a free version of their product, it is found that firms in the model are only willing to offer free versions of the good if the value of the network externality is neither too large nor too small.