Making Friends Meet: Network Formation with Introductions

Jan-Peter Siedlarek

No 20-01R2, Working Papers from Federal Reserve Bank of Cleveland

Abstract: This paper proposes a parsimonious model of network formation with introductions in the presence of intermediation rents. Introductions allow two nodes to form a new connection on favorable terms with the help of a common neighbor. The decision to form links via introductions is subject to a trade-off between the gains from having a direct connection at lower cost and the potential losses for the introducer from lower intermediation rents. When nodes take advantage of introductions, stable networks tend to exhibit a minimum amount of clustering. At the same time, intermediary nodes have incentives to protect their position, and stable networks can exhibit nodes exploiting structural holes, that is, bridges across otherwise unconnected parts of the network earning intermediation rents.

Keywords: intermediation; introductions; network formation; networks; clustering; structural holes (search for similar items in EconPapers)
JEL-codes: A14 D85 (search for similar items in EconPapers)
Pages: 44
Date: 2020-01-15, Revised 2022-06-28
New Economics Papers: this item is included in nep-gth, nep-mic, nep-net, nep-pay, nep-soc and nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Journal Article: Making friends meet: network formation with introductions (2023)
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DOI: 10.26509/frbc-wp-202001r2

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