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Global Games with Strategic Substitutes

In this paper we use a non cooperative equilibrium selection approach as a notion of stability in link formation games. Specifically, we follow the global games approach first introduced by Carlsson and van Damme (1993), to study the robustness of the set of Nash equilibria for a class of link formation games in strategic form with supermodular payo. functions. Interestingly, the equilibrium selected is in conflict with those predicted by the traditional cooperative refinements. Moreover, we get a conflict between stability and e.ciency even when no such conflict exists with the cooperative refinements. We discuss some practical issues that these di.erent theoretical approaches raise in reality. The paper also provides an extension of the global game theory that can be applied beyond network literature.

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Paper provided by Georgetown University, Department of Economics in its series Working Papers with number gueconwpa~03-03-07.

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Date of creation: 07 Mar 2003
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Handle: RePEc:geo:guwopa:gueconwpa~03-03-07
Contact details of provider: Postal: Georgetown University Department of Economics Washington, DC 20057-1036
Phone: 202-687-6074
Fax: 202-687-6102
Web page: http://econ.georgetown.edu/
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Order Information: Postal: Roger Lagunoff Professor of Economics Georgetown University Department of Economics Washington, DC 20057-1036
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  1. Leigh Tesfatsion, 1998. "Gale-Shapley Matching in an Evolutionary Trade Network Game," Game Theory and Information 9805004, EconWPA, revised 26 Jul 1998.
  2. (*), Anne van den Nouweland & Marco Slikker, 2000. "original papers : Network formation models with costs for establishing links," Review of Economic Design, Springer, vol. 5(3), pages 333-362.
  3. Carlsson, H. & van Damme, E.E.C., 1993. "Global games and equilibrium selection," Other publications TiSEM 49a54f00-dcec-4fc1-9488-4, Tilburg University, School of Economics and Management.
  4. Frankel, David M. & Morris, Stephen & Pauzner, Ady, 2003. "Equilibrium Selection in Global Games with Strategic Complementarities," Staff General Research Papers 11920, Iowa State University, Department of Economics.
  5. Dutta, B. & van den Nouweland, C.G.A.M. & Tijs, S.H., 1998. "Link formation in cooperative situations," Other publications TiSEM fb302bdf-f6ab-4909-99d5-5, Tilburg University, School of Economics and Management.
  6. Deborah F. Minehart & Rachel E. Kranton, 2000. "original papers : Competition for goods in buyer-seller networks," Review of Economic Design, Springer, vol. 5(3), pages 301-331.
  7. KOHLBERG, Elon & MERTENS, Jean-François, . "On the strategic stability of equilibria," CORE Discussion Papers RP -716, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  8. Dutta, Bhaskar & Mutuswami, Suresh, 1997. "Stable Networks," Journal of Economic Theory, Elsevier, vol. 76(2), pages 322-344, October.
    • Dutta, Bhaskar & Mutuswami, Suresh, 1996. "Stable Networks," Working Papers 971, California Institute of Technology, Division of the Humanities and Social Sciences.
  9. Matthew O. Jackson & Asher Wolinsky, 1994. "A Strategic Model of Social and Economic Networks," Discussion Papers 1098, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  10. Atsushi Kajii & Stephen Morris, . ""The Robustness of Equilibria to Incomplete Information*''," CARESS Working Papres 95-18, University of Pennsylvania Center for Analytic Research and Economics in the Social Sciences.
  11. Venkatesh Bala & Sanjeev Goyal, 2000. "A Noncooperative Model of Network Formation," Econometrica, Econometric Society, vol. 68(5), pages 1181-1230, September.
  12. Hendricks, Ken & Piccione, Michele & Tan, Guofu, 1995. "The Economics of Hubs: The Case of Monopoly," Review of Economic Studies, Wiley Blackwell, vol. 62(1), pages 83-99, January.
  13. Gehrig, Thomas & Régibeau, Pierre & Rockett, Katharine, 1998. "Project Evaluation and Organizational Form," CEPR Discussion Papers 1888, C.E.P.R. Discussion Papers.
  14. Montgomery, James D, 1991. "Social Networks and Labor-Market Outcomes: Toward an Economic Analysis," American Economic Review, American Economic Association, vol. 81(5), pages 1407-18, December.
  15. Xavier Vives, 2001. "Oligopoly Pricing: Old Ideas and New Tools," MIT Press Books, The MIT Press, edition 1, volume 1, number 026272040x, June.
  16. John C Harsanyi, 1997. "Games with incomplete information played by "bayesian" players," Levine's Working Paper Archive 1175, David K. Levine.
  17. Weisbuch, Gerard & Alan Kirman & Dorothea K. Herreiner, 1996. "Market Organization," Discussion Paper Serie B 391, University of Bonn, Germany.
  18. John C. Harsanyi & Reinhard Selten, 1988. "A General Theory of Equilibrium Selection in Games," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262582384, June.
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