Heterogeneity in sequential network formation games

In the benchmark model of network formation by Bala and Goyal (2000), the equilibrium network is known as the Center-Sponsored Star (CSS), wherein one player establishes a link with every other player. However, laboratory experiments have shown that CSS do not emerge due to coordination failure and fairness concerns. The difficulty arises from the fact that participants are homogeneous and make simultaneous decisions, making it highly challenging for them to converge on an asymmetric network. In this study, we addressed this coordination issue by introducing a sequential linking decision process. Furthermore, we introduced heterogeneity among the participants and examined whether the presence of a special individual (such as one with a higher monetary value or a different status) affected the network structure. The results revealed that the sequential decision-making process enables the coordination on fair and efficient networks, but not CSS. The impact of heterogeneity varies depending on the type of heterogeneity: the participants with higher values attract more links, leading to increased network asymmetry, whereas non-monetary heterogeneity does not influence linking decisions.