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The role of middlemen in efficient and strongly pairwise stable networks

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Author Info
Gilles, R.P.
Chakrabarti, S.
Sarangi, S.
Badasyan, N. (Tilburg University, Center for Economic Research)

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Abstract

We examine the strong pairwise stability concept in network formation theory under collective network benefits. Strong pairwise stability considers a pair of players to add a link through mutual consent while permitting them to unilaterally delete any subset of links under their control. We examine the properties of strongly pairwise stable networks and find that players in middleman positions, who have the power to break up the network into multiple components, play a critical role in such networks. We show that for the component-wise egalitarian rule there is no conflict between the efficient and stable networks when these middlemen have no incentive to break up the network. Finally, we examine efficiency and stability in middleman-free networks.

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Paper provided by Tilburg University, Center for Economic Research in its series Discussion Paper with number 64.

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Date of creation: 2004
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Handle: RePEc:dgr:kubcen:200464

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Find related papers by JEL classification:
C71 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Cooperative Games
C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games

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    Other versions:
  3. Goyal, S. & Joshi, S., 1999. "Bilateralism and free trade," Econometric Institute Report EI 9953-/A Revision_Date:, Erasmus University Rotterdam, Econometric Institute. [Downloadable!]
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  7. Jackson, Matthew O. & Wolinsky, Asher, 1996. "A Strategic Model of Social and Economic Networks," Journal of Economic Theory, Elsevier, vol. 71(1), pages 44-74, October. [Downloadable!] (restricted)
    Other versions:
  8. S. Goyal & S. Joshi, 1999. "Bilateralism and free trade," Econometric Institute Report 176, Erasmus University Rotterdam, Econometric Institute. [Downloadable!]
    Other versions:
    • Sanjeev Goyal & Sumit Joshi, 2006. "Bilateralism And Free Trade," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 47(3), pages 749-778, 08. [Downloadable!] (restricted)
  9. Bloch, Francis & Jackson, Matthew, 2004. "The Formation of Networks with Transfers among Players," Working Papers 1194, California Institute of Technology, Division of the Humanities and Social Sciences. [Downloadable!]
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  10. Venkatesh Bala & Sanjeev Goyal, 2000. "A Noncooperative Model of Network Formation," Econometrica, Econometric Society, vol. 68(5), pages 1181-1230, September.
  11. Matthew O. Jackson, 2003. "A Survey of Models of Network Formation: Stability and Efficiency," Game Theory and Information 0303011, EconWPA. [Downloadable!]
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  12. Klein, Benjamin & Leffler, Keith B, 1981. "The Role of Market Forces in Assuring Contractual Performance," Journal of Political Economy, University of Chicago Press, vol. 89(4), pages 615-41, August. [Downloadable!] (restricted)
  13. Sudipta Sarangi & H. Haller, . "Nash Networks with Heterogeneous Agents," Departmental Working Papers 2003-06, Department of Economics, Louisiana State University. [Downloadable!]
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  14. Sudipta Sarangi & Robert P. Gilles, 2004. "The Role of Trust in Costly Network Formation," Econometric Society 2004 North American Summer Meetings 483, Econometric Society. [Downloadable!]
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  15. Rubinstein, Ariel & Wolinsky, Asher, 1987. "Middlemen," The Quarterly Journal of Economics, MIT Press, vol. 102(3), pages 581-93, August. [Downloadable!] (restricted)
  16. Utku Unver & Hideo Konishi, 2005. "Credible Group Stability in Multi-Partner Matching Problems," 2005 Meeting Papers 208, Society for Economic Dynamics. [Downloadable!]
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  17. Gary Biglaiser, 1993. "Middlemen as Experts," RAND Journal of Economics, The RAND Corporation, vol. 24(2), pages 212-223, Summer. [Downloadable!] (restricted)
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  1. Gilles, R.P. & Sarangi, S., 2004. "Social network formation with consent," Discussion Paper 70, Tilburg University, Center for Economic Research. [Downloadable!]
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