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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. de Martí, Joan & Zenou, Yves, 2009. "Social Networks," IZA Discussion Papers 4621, Institute for the Study of Labor (IZA).
  2. Kets, W., 2007. "Beliefs in Network Games (Replaced by CentER DP 2008-05)," Discussion Paper 2007-46, Tilburg University, Center for Economic Research.
  3. Kets, W., 2007. "Convergence of Beliefs in Bayesian Network Games," Discussion Paper 2007-98, Tilburg University, Center for Economic Research.
  4. Catherine Tucker, 2011. "Network Stability, Network Externalities and Technology Adoption," NBER Working Papers 17246, National Bureau of Economic Research, Inc.
  5. Sanjeev Goyal & Andrea Galeotti, 2007. "A Theory of Strategic Diffusion," Working Papers 2007.70, Fondazione Eni Enrico Mattei.
  6. 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.
  7. Daniel Birke, 2008. "The economics of networks - A survey of the empirical literature," Occasional Papers 22, Industrial Economics Division.
  8. Masaki Aoyagi, 2010. "Monopoly Sale of a Network Good," ISER Discussion Paper 0794, Institute of Social and Economic Research, Osaka University.
  9. Kets, W., 2008. "Beliefs in Network Games (Revised version of CentER DP 2007-46)," Discussion Paper 2008-5, Tilburg University, Center for Economic Research.
  10. Andrea Galeotti & Sanjeev Goyal & Matthew O. Jackson & Fernando Vega-Redondo & Leeat Yariv, 2008. "Network Games," Economics Working Papers ECO2008/07, European University Institute.
    • 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.
  11. Sääskilahti, Pekka, 2007. "Monopoly pricing of social goods," MPRA Paper 3526, University Library of Munich, Germany.

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