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Reciprocal Equilibria in Link Formation Games


  • Hannu Salonen

    () (University of Turku, Department of Economics, Turku, Finland)


We study non-cooperative link formation games in which players have to decide how much to invest in relationships with other players. A link between two players is formed, if and only if both make a positive investment. The cost of forming a link can be interpreted as the value of privacy. We analyze the existence of pure strategy equilibria and the resulting network structures with tractable specifications of utility functions. Sufficient conditions for the existence of reciprocal equilibria are given and the corresponding network structure is analyzed. Pareto optimal and strongly stable network structures are studied. It turns out that such networks are often complete.

Suggested Citation

  • Hannu Salonen, 2015. "Reciprocal Equilibria in Link Formation Games," Czech Economic Review, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, vol. 9(3), pages 169-183, December.
  • Handle: RePEc:fau:aucocz:au2015_169

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    References listed on IDEAS

    1. Hannu Salonen, 2016. "Equilibria and centrality in link formation games," International Journal of Game Theory, Springer;Game Theory Society, vol. 45(4), pages 1133-1151, November.
    2. Sergio Currarini & Matthew O. Jackson & Paolo Pin, 2009. "An Economic Model of Friendship: Homophily, Minorities, and Segregation," Econometrica, Econometric Society, vol. 77(4), pages 1003-1045, July.
    3. Bloch, Francis & Dutta, Bhaskar, 2009. "Communication networks with endogenous link strength," Games and Economic Behavior, Elsevier, vol. 66(1), pages 39-56, May.
    4. Cabrales, Antonio & Calvó-Armengol, Antoni & Zenou, Yves, 2011. "Social interactions and spillovers," Games and Economic Behavior, Elsevier, vol. 72(2), pages 339-360, June.
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    Cited by:

    1. Chiu Ki So, 2016. "Network Formation with Endogenous Link Strength and Decreasing Returns to Investment," Games, MDPI, Open Access Journal, vol. 7(4), pages 1-9, December.
    2. Hannu Salonen, 2016. "Equilibria and centrality in link formation games," International Journal of Game Theory, Springer;Game Theory Society, vol. 45(4), pages 1133-1151, November.

    More about this item


    Link formation games; reciprocal equilibrium; complete network;

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection


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