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Club Formation Games with Farsighted Agents

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Author Info

  • Frank H. Page, Jr.

    () (Department of Finance, University of Alabama)

  • Myrna H. Wooders

    () (Department of Economics, Vanderbilt University)

Abstract

Modeling club structures as bipartite networks, we formulate the problem of club formation as a game of network formation and identify those club networks that are stable if agents behave farsightedly in choosing their club memberships. Using the farsighted core as our stability notion, we show that if agents' payoffs are single-peaked and agents agree on the peak club size (i.e., agents agree on the optimal club size) and if there sufficiently many clubs to allow for the partition of agents into clubs of optimal size, then a necessary and sufficient condition for the farsighted core to be nonempty is that agents who end up in smaller-than-optimal size clubs have no incentive to switch their memberships to already existing clubs of optimal size. In contrast, we show via an example that if there are too few clubs relative to the number of agents, then the farsighted core may be empty. Contrary to prior results in the literature involving myopic behavior, our example shows that overcrowding and farsightedness lead to instability in club formation.

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File URL: http://www.accessecon.com/pubs/VUECON/vu05-w29.pdf
File Function: First version, 2005
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Bibliographic Info

Paper provided by Vanderbilt University Department of Economics in its series Vanderbilt University Department of Economics Working Papers with number 0529.

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Date of creation: Dec 2005
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Handle: RePEc:van:wpaper:0529

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Web page: http://www.vanderbilt.edu/econ/wparchive/index.html

Related research

Keywords: Club formation; club networks; noncooperative games; farsighted stability; farsighted core; path dominance;

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  1. Conley, John P. & Konishi, Hideo, 2002. "Migration-proof Tiebout equilibrium: existence and asymptotic efficiency," Journal of Public Economics, Elsevier, vol. 86(2), pages 243-262, November.
  2. Frank H. Page Jr. & Myrna H. Wooders & Samir Kamat, 2002. "Networks and Farsighted Stability," Computing in Economics and Finance 2002 370, Society for Computational Economics.
  3. Tone Arnold & Myrna Wooders, 2005. "Dynamic Club Formation with Coordination," Vanderbilt University Department of Economics Working Papers 0522, Vanderbilt University Department of Economics.
  4. 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.
  5. Konishi, Hideo & Weber, Shlomo & Le Breton, Michel, 1997. "Free mobility equilibrium in a local public goods economy with congestion," Research in Economics, Elsevier, vol. 51(1), pages 19-30, April.
  6. Demange,Gabrielle & Wooders,Myrna (ed.), 2005. "Group Formation in Economics," Cambridge Books, Cambridge University Press, number 9780521842716.
  7. Gabrielle Demange, 2004. "Group formation: The interaction of increasing returns and preferences' diversity," DELTA Working Papers 2004-30, DELTA (Ecole normale supérieure).
  8. Venkatesh Bala & Sanjeev Goyal, 2000. "A Noncooperative Model of Network Formation," Econometrica, Econometric Society, vol. 68(5), pages 1181-1230, September.
  9. Chwe Michael Suk-Young, 1994. "Farsighted Coalitional Stability," Journal of Economic Theory, Elsevier, vol. 63(2), pages 299-325, August.
  10. Kirman, Alan P., 1983. "Communication in markets : A suggested approach," Economics Letters, Elsevier, vol. 12(2), pages 101-108.
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Cited by:
  1. Frank Page & Myrna Wooders, 2007. "Strategic Basins of Attraction, the Path Dominance Core, and Network Formation Games," Caepr Working Papers 2007-020, Center for Applied Economics and Policy Research, Economics Department, Indiana University Bloomington.

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