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Local Network Effects and Network Structure

Arun Sundararajan ()

Industrial Organization from University Library of Munich, Germany

Abstract: This paper presents a model of local network effects in which agents connected in a social network each value adoption by a heterogeneous subset of others, 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 a general adoption game are in monotone strategies, can be strictly Pareto-ranked, and that the greatest equilibrium is uniquely coalition-proof. Each Bayes-Nash equilibrium has a corresponding fulfilled-expectations equilibrium under which agents form local-adoption expectations. Examples analyze three special cases including a standard model with completely connected agents, and characterize the distributions of equilibrium networks of adopters when the social network is an instance of a generalized random graph.

Keywords: network structure; random graph; small world; science of networks; network formation; adoption game (search for similar items in EconPapers)
JEL-codes: C72 (search for similar items in EconPapers)
Pages: 38 pages
Date: 2004-12-19
New Economics Papers: this item is included in nep-net
Note: Type of Document - pdf; pages: 38. Model of adoption of a good by strategic nodes in a random graph.
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Persistent link: https://EconPapers.repec.org/RePEc:wpa:wuwpio:0412011

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