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Networks of relations and Word-of-Mouth Communication

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  • Lippert, Steffen
  • Spagnolo, Giancarlo

Abstract

We study networks of relations - groups of agents linked by several cooperative relationships - exploring equilibrium conditions under different network configurations and information structures. Relationships are the links through which soft information can flow, and the value of a network lies in its ability to enforce agreements that could not be sustained without the information and sanctioning power provided by other network members. The model explains why network closure is important; why stable subnetworks may inhibit more valuable larger networks; and why information flows and action choices cannot be analyzed separately. Contagion strategies are suboptimal here, as they inhibit information transmission, delaying punishments.

Suggested Citation

  • Lippert, Steffen & Spagnolo, Giancarlo, 2011. "Networks of relations and Word-of-Mouth Communication," Games and Economic Behavior, Elsevier, vol. 72(1), pages 202-217, May.
  • Handle: RePEc:eee:gamebe:v:72:y:2011:i:1:p:202-217
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    More about this item

    Keywords

    Collusion Communication Community enforcement Contagion Cooperation Multimarket contact Private monitoring Relational contracts Repeated games Reputation Rumors Social capital Social collateral Social networks Soft information Trust;

    JEL classification:

    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L29 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Other
    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements

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