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Local Network Effects and Network Structure

  • Arun Sundararajan

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://econwpa.repec.org/eps/io/papers/0412/0412011.pdf
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Paper provided by EconWPA in its series Industrial Organization with number 0412011.

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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.
Contact details of provider: Web page: http://econwpa.repec.org

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