Perceived Competition in Networks

Yves Zenou, Olivier Bochet (), Mathieu Faure () and Yan Long

No 15582, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: Agents compete for the same resources and are only aware of their direct neighbors in a network. We propose a new equilibrium concept, referred to as peer-consistent equilibrium (PCE). In a PCE, each agent chooses an effort level that maximizes her subjective perceived utility and the effort levels of all individuals in the network need to be consistent. We develop an algorithm that breaks the network into communities. We use this decomposition to completely characterize peer-consistent equilibria by identifying which sets of agents can be active in equilibrium. An agent is active if she either belongs to a strong community or if few agents are aware of her existence. We show that there is a unique stable PCE. We provide a microfoundation of eigenvector centrality, since, in any stable PCE, agents' effort levels are proportional to their eigenvector centrality in the network.

Keywords: Social Networks; Eigenvector centrality; Policies (search for similar items in EconPapers)
JEL-codes: C72 D85 (search for similar items in EconPapers)
Date: 2020-12
New Economics Papers: this item is included in nep-gth, nep-mic, nep-net and nep-upt
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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