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Network Formation Under Heterogeneous Costs: The Multiple Group Model

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  • JURJEN KAMPHORST

    ()
    (Utrecht School of Economics and Tjalling C. Koopmans Institute, Utrecht University, Utrecht, The Netherlands)

  • GERARD VAN DER LAAN

    ()
    (Department of Econometrics and Tinbergen Institute, Vrije Universiteit, De Boelelaan 1105, Amsterdam, The Netherlands)

Abstract

It is widely recognized that the shape of networks influences both individual and aggregate behavior. This raises the question which types of networks are likely to arise. In this paper we investigate a model of network formation, where players are divided into groups and the costs of a link between any pair of players are increasing in the distance between the groups that these players belong to. We give a full characterization of the networks induced by a minimal curb set for any number of groups. To do so, we show that in our multiple group model each minimal curb set is a so-called super-tight curb set, that is a minimal curb set satisfying the condition that in each state of the set every player has the same best reply. From the proof it follows that every recurrent class of an unperturbed best reply dynamics is a minimal (super-tight) curb set and reversely, which yields the characterization result. We show that in case of multiple groups networks in minimal curb sets may have features that can not occur in networks with at most two groups. Nevertheless, local centrality and center-sponsorship are still important characteristics of the networks in minimal curb sets.

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Bibliographic Info

Article provided by World Scientific Publishing Co. Pte. Ltd. in its journal International Game Theory Review.

Volume (Year): 09 (2007)
Issue (Month): 04 ()
Pages: 599-635

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Handle: RePEc:wsi:igtrxx:v:09:y:2007:i:04:p:599-635

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Related research

Keywords: Network formation; cost heterogeneity; strict Nash equilibrium; minimal curb set; C72; D85;

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Cited by:
  1. K.J.M. De Jaegher & J.J.A. Kamphorst, 2009. "Two-way flow networks with small decay," Working Papers 09-34, Utrecht School of Economics.
  2. K.J.M. De Jaegher & J.J.A. Kamphorst, 2008. "Network formation with decreasing marginal benefits of information," Working Papers 08-16, Utrecht School of Economics.
  3. K. De Jaegher & J.J.A. Kamphorst, 2010. "Two-way Flow Networks with Small Decay," Tinbergen Institute Discussion Papers 10-125/1, Tinbergen Institute.

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