Club Formation Games with Farsighted Agents

Frank Page and Myrna Wooders

No 529, Vanderbilt University Department of Economics Working Papers from Vanderbilt University Department of Economics

Abstract: Modeling club structures as bipartite networks, we formulate the problem of club formation as a game of network formation and identify those club networks that are stable if agents behave farsightedly in choosing their club memberships. Using the farsighted core as our stability notion, we show that if agents' payoffs are single-peaked and agents agree on the peak club size (i.e., agents agree on the optimal club size) and if there sufficiently many clubs to allow for the partition of agents into clubs of optimal size, then a necessary and sufficient condition for the farsighted core to be nonempty is that agents who end up in smaller-than-optimal size clubs have no incentive to switch their memberships to already existing clubs of optimal size. In contrast, we show via an example that if there are too few clubs relative to the number of agents, then the farsighted core may be empty. Contrary to prior results in the literature involving myopic behavior, our example shows that overcrowding and farsightedness lead to instability in club formation.

Keywords: Club formation; club networks; noncooperative games; farsighted stability; farsighted core; path dominance (search for similar items in EconPapers)
JEL-codes: C72 C73 D71 D85 (search for similar items in EconPapers)
Date: 2005-12
New Economics Papers: this item is included in nep-gth, nep-net and nep-soc
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:van:wpaper:0529

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