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Local Network Effects and Network Structure

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Author Info
Arun Sundararajan

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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://129.3.20.41/eps/io/papers/0412/0412011.pdf
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Publisher Info
Paper provided by EconWPA in its series Industrial Organization with number 0412011.

Download reference. The following formats are available: HTML (with abstract), plain text (with abstract), BibTeX, RIS (EndNote, RefMan, ProCite), ReDIF
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://129.3.20.41

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

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

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  1. Kets, W., 2007. "Beliefs in Network Games (Replaced by CentER DP 2008-05)," Discussion Paper 2007-46, Tilburg University, Center for Economic Research. [Downloadable!]
  2. Sääskilahti, Pekka, 2007. "Monopoly pricing of social goods," MPRA Paper 3526, University Library of Munich, Germany. [Downloadable!]
  3. Jackson, Matthew O. & Yariv, Leeat, 2006. "Diffusion of Behavior and Equilibrium Properties in Network Games," Working Papers 1264, California Institute of Technology, Division of the Humanities and Social Sciences. [Downloadable!]
    Other versions:
  4. Kets, W., 2007. "Convergence of Beliefs in Bayesian Network Games," Discussion Paper 2007-98, Tilburg University, Center for Economic Research. [Downloadable!]
  5. Andrea Galeotti & Sanjeev Goyal & Matthew O. Jackson & Fernando Vega-Redondo & Leeat Yariv, 2008. "Network Games," Economics Working Papers ECO2008/07, European University Institute. [Downloadable!]
  6. Catherine Tucker, 2008. "Social Interactions, Network Fluidity and Network Effects," Working Papers 08-30, NET Institute, revised Oct 2008. [Downloadable!]
  7. Andrea Galeotti & Sanjeev Goyal, 2007. "A Theory of Strategic Diffusion," Economics Discussion Papers 635, University of Essex, Department of Economics. [Downloadable!]
    Other versions:
  8. Kets, W., 2008. "Beliefs in Network Games (Revised version of CentER DP 2007-46)," Discussion Paper 2008-5, Tilburg University, Center for Economic Research. [Downloadable!]
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