Local Network Effects and Complex Network Structure

Sundararajan Arun
Additional contact information
Sundararajan Arun: New York University, arun@stern.nyu.edu

The B.E. Journal of Theoretical Economics, 2008, vol. 7, issue 1, 37

Abstract: This paper presents a model of local network effects in which agents connected in a social network each value the adoption of a product by a heterogeneous subset of other agents in their neighborhood, 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 this network game are in monotone strategies, can be strictly Pareto-ranked based on a scalar neighbor-adoption probability value, and that the greatest such equilibrium is uniquely coalition-proof. Each Bayes-Nash equilibrium has a corresponding fulfilled-expectations equilibrium under which agents form local adoption expectations. Examples illustrate cases in which the social network is an instance of a Poisson random graph, when it is a complete graph, a standard model of network effects, and when it is a generalized random graph. A generating function describing the structure of networks of adopting agents is characterized as a function of the Bayes-Nash equilibrium they play, and empirical implications of this characterization are discussed.

Keywords: social networks; network science; network externalities; network goods; rational expectations; local information; complex network; small-world (search for similar items in EconPapers)
Date: 2008
References: View complete reference list from CitEc
Citations: View citations in EconPapers (15)

Downloads: (external link)
https://doi.org/10.2202/1935-1704.1319 (text/html)
For access to full text, subscription to the journal or payment for the individual article is required.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bpj:bejtec:v:7:y:2008:i:1:n:46

Ordering information: This journal article can be ordered from
https://www.degruyter.com/journal/key/bejte/html

DOI: 10.2202/1935-1704.1319

Access Statistics for this article

The B.E. Journal of Theoretical Economics is currently edited by Burkhard C. Schipper

More articles in The B.E. Journal of Theoretical Economics from De Gruyter
Bibliographic data for series maintained by Peter Golla ().