A new model of strategic network formation is developed and analyzed, where an agent's investment in links is nonspecific. The model comprises a large class of games which are both potential and super- or submodular games. We obtain comparative statics results for Nash equilibria with respect to investment costs for supermodular as well as submodular networking games. We also study logit-perturbed best-response dynamics for supermodular games with potentials. We find that the associated set of stochastically stable states forms a sublattice of the lattice of Nash equilibria and derive comparative statics results for the smallest and the largest stochastically stable state. Finally, we provide a broad spectrum of applications from social interaction to industrial organization. Models of strategic network formation typically assume that each agent selects his direct links to other agents in which to invest. Nonspecific networking means that an agent cannot select a specific subset of feasible links which he wants to establish or strengthen. Rather, each agent chooses an effort level or intensity of networking. In the simplest case, the agent faces a binary choice: to network or not to network. If an agent increases his networking effort, all direct links to other agents are strengthened to various degrees. We assume that benefits accrue only from direct links. The set of agents or players is finite. Each agent has a finite strategy set consisting of the networking levels to choose from. For any pair of agents, their networking levels determine the individual benefits which they obtain from interacting with each other. An agent derives an aggregate benefit from the pairwise interactions with all others. In addition, the agent incurs networking costs, which are a function of the agent's own networking level. The agent's payoff is his aggregate benefit minus his cost.
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Voorneveld, Mark, 2000. "Best-response potential games," Economics Letters, Elsevier, vol. 66(3), pages 289-295, March.
- Milgrom, P. & Shannon, C., 1991.
"Monotone Comparative Statics,"
11, Stanford - Institute for Thoretical Economics.
- Larry E. Blume, 1996.
96-04-022, Santa Fe Institute.
- Zhou Lin, 1994. "The Set of Nash Equilibria of a Supermodular Game Is a Complete Lattice," Games and Economic Behavior, Elsevier, vol. 7(2), pages 295-300, September.
- Sudipta Sarangi & H. Haller, "undated".
"Nash Networks with Heterogeneous Agents,"
Departmental Working Papers
2003-06, Department of Economics, Louisiana State University.
- Federico Echenique, 2003. "The equilibrium set of two-player games with complementarities is a sublattice," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 22(4), pages 903-905, November.
- Kandori Michihiro & Rob Rafael, 1995.
"Evolution of Equilibria in the Long Run: A General Theory and Applications,"
Journal of Economic Theory,
Elsevier, vol. 65(2), pages 383-414, April.
- M. Kandori & R. Rob, 2010. "Evolution of Equilibria in the Long Run: A General Theory and Applications," Levine's Working Paper Archive 502, David K. Levine.
- Oddvar M. Kaarbøe & Alexander F. Tieman, 0000.
"Equilibrium Selection in Games with Macroeconomic Complementarities,"
Tinbergen Institute Discussion Papers
99-096/1, Tinbergen Institute.
- Kaarboe, O.M. & Tieman, A.F., 2000. "Equilibrium Selection in Games with Macroeconomic Complementarities," Norway; Department of Economics, University of Bergen 2199, Department of Economics, University of Bergen.
- Carlos Alós Ferrer & Ana B. Ania, 2002. "The Evolutionary Logic of Feeling Small," Vienna Economics Papers 0216, University of Vienna, Department of Economics.
- Philippe Solal & Hans Haller & Richard Baron & Jacques Durieu, 2002. "A note on control costs and logit rules for strategic games," Journal of Evolutionary Economics, Springer, vol. 12(5), pages 563-575.
- Burkhard C. Schipper, 2004.
"Submodularity and the evolution of Walrasian behavior,"
International Journal of Game Theory,
Springer;Game Theory Society, vol. 32(4), pages 471-477, 08.
- Burkhard Schipper, 2002. "Submodularity and the Evolution of Walrasian Behavior," Bonn Econ Discussion Papers bgse4_2003, University of Bonn, Germany.
- Xavier Vives, 2001. "Oligopoly Pricing: Old Ideas and New Tools," MIT Press Books, The MIT Press, edition 1, volume 1, number 026272040x.
- P. Dubey & O. Haimanko & A. Zapechelnyuk, 2002. "Strategic Substitutes and Potential Games," Department of Economics Working Papers 02-02, Stony Brook University, Department of Economics.
- Blume Lawrence E., 1993.
"The Statistical Mechanics of Strategic Interaction,"
Games and Economic Behavior,
Elsevier, vol. 5(3), pages 387-424, July.
- L. Blume, 2010. "The Statistical Mechanics of Strategic Interaction," Levine's Working Paper Archive 488, David K. Levine.
- Mattsson, Lars-Goran & Weibull, Jorgen W., 2002. "Probabilistic choice and procedurally bounded rationality," Games and Economic Behavior, Elsevier, vol. 41(1), pages 61-78, October.
- Echenique, Federico & Sabarwal, Tarun, 2003. "Strong comparative statics of equilibria," Games and Economic Behavior, Elsevier, vol. 42(2), pages 307-314, February.
When requesting a correction, please mention this item's handle: RePEc:wpa:wuwpga:0403005. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (EconWPA)
If references are entirely missing, you can add them using this form.