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Local Network Effects and Network Structure

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Author Info

  • Arun Sundararajan

Abstract

This paper presents a model of local network effects in which agents connected in a social network each value adoption by a heterogeneous subset of others, and have incomplete information about the structure and strength of adoption complementarities between all other agents. I show that the symmetric Bayes-Nash equilibria of a general adoption game are in monotone strategies, can be strictly Pareto-ranked, and that the greatest equilibrium is uniquely coalition-proof. Each Bayes-Nash equilibrium has a corresponding fulfilled-expectations equilibrium under which agents form local-adoption expectations. Examples analyze three special cases including a standard model with completely connected agents, and characterize the distributions of equilibrium networks of adopters when the social network is an instance of a generalized random graph.

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File URL: http://128.118.178.162/eps/io/papers/0412/0412011.pdf
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Bibliographic Info

Paper provided by EconWPA in its series Industrial Organization with number 0412011.

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Length: 38 pages
Date of creation: 19 Dec 2004
Date of revision:
Handle: RePEc:wpa:wuwpio:0412011

Note: Type of Document - pdf; pages: 38. Model of adoption of a good by strategic nodes in a random graph.
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Web page: http://128.118.178.162

Related research

Keywords: network structure; random graph; small world; science of networks; network formation; adoption game;

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Cited by:
  1. Liangjie Zhao & Wenqi Duan, 2014. "Simulating the Evolution of Market Shares: The Effects of Customer Learning and Local Network Externalities," Computational Economics, Society for Computational Economics, vol. 43(1), pages 53-70, January.
  2. Andrea Galeotti & Sanjeev Goyal & Matthew O. Jackson & Fernando Vega-Redondo & Leeat Yariv, 2010. "Network Games," Review of Economic Studies, Oxford University Press, vol. 77(1), pages 218-244.
  3. Gary Charness & Francesco Feri & Miguel A. Meléndez-Jiménez & Matthias Sutter, 2014. "Experimental games on networks: Underpinnings of behavior and equilibrium selection," Working Papers 2014-14, Faculty of Economics and Statistics, University of Innsbruck.
  4. Kets, W., 2007. "Convergence of Beliefs in Bayesian Network Games," Discussion Paper 2007-98, Tilburg University, Center for Economic Research.
  5. Kets, W., 2007. "Beliefs in Network Games (Replaced by CentER DP 2008-05)," Discussion Paper 2007-46, Tilburg University, Center for Economic Research.
  6. de Marti, Joan & Zenou, Yves, 2009. "Social Networks," Working Paper Series 816, Research Institute of Industrial Economics.
  7. Masaki Aoyagi, 2010. "Monopoly Sale of a Network Good," ISER Discussion Paper 0794, Institute of Social and Economic Research, Osaka University.
  8. Daniel Birke, 2008. "The economics of networks - A survey of the empirical literature," Occasional Papers 22, Industrial Economics Division.
  9. Sääskilahti, Pekka, 2007. "Monopoly pricing of social goods," MPRA Paper 3526, University Library of Munich, Germany.
  10. Catherine Tucker, 2011. "Network Stability, Network Externalities and Technology Adoption," NBER Working Papers 17246, National Bureau of Economic Research, Inc.
  11. A. Banerji & Bhaskar Dutta, 2008. "Local network externalities and market segmentation," Indian Statistical Institute, Planning Unit, New Delhi Discussion Papers 08-13, Indian Statistical Institute, New Delhi, India.
  12. Andrea Galeotti & Sanjeev Goyal, 2007. "A Theory of Strategic Diffusion," Economics Discussion Papers 635, University of Essex, Department of Economics.
  13. Jacob K. Goeree & Margaret A. McConnell & Tiffany Mitchell & Tracey Tromp & Leeat Yariv, 2010. "The 1/d Law of Giving," American Economic Journal: Microeconomics, American Economic Association, vol. 2(1), pages 183-203, February.
  14. Catherine Tucker, 2008. "Social Interactions, Network Fluidity and Network Effects," Working Papers 08-30, NET Institute.
  15. Kets, W., 2008. "Beliefs in Network Games (Revised version of CentER DP 2007-46)," Discussion Paper 2008-5, Tilburg University, Center for Economic Research.
  16. Hornuf, Lars & Engert, Andreas, 2013. "Can Network Effects Impede Optimal Contracting in Debt Securities?," Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order 79867, Verein für Socialpolitik / German Economic Association.

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