PAYOFF FUNCTIONS IN THE ONE-WAY FLOW MODEL OF NETWORK FORMATION FOR WHICH NASH NETWORKS EXIST

Jean Derks and Martijn Tennekes ()
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Martijn Tennekes: Department of Knowledge Engineering, Maastricht University, P. O. Box 616, 6200 MD, Maastricht, the Netherlands

International Game Theory Review (IGTR), 2011, vol. 13, issue 01, 61-73

Abstract: We study a non-cooperative model of unilateral network formation. Derkset al.[2008b] prove the existence of local-Nash and global-Nash networks for games with payoff functions that satisfy a framework of axiomatic properties. These properties are inspired by the one-way flow model, which is characterized by the following payoff structure. Each agent pays a cost for each formed link and receives profits from being connect to other agents. In this paper we fully characterize the payoff functions in the one-way flow model that satisfy all properties. We show that under certain conditions, payoff functions with heterogeneous link costs and heterogeneous profits satisfy all properties for which the existence of local-Nash networks is proved. Furthermore, we show that all payoff functions with owner-homogeneous link costs and heterogeneous profits satisfy all properties, and therefore imply the existence of global-Nash networks.

Keywords: Non-cooperative games; network formation; axiomatization; payoff functions; Subject Classification: C72; Subject Classification: D85 (search for similar items in EconPapers)
JEL-codes: B4 C0 C6 C7 D5 D7 M2 (search for similar items in EconPapers)
Date: 2011
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DOI: 10.1142/S0219198911002848

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