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original papers : Network formation models with costs for establishing links

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  • (*), Anne van den Nouweland
  • Marco Slikker

Abstract

In this paper we study endogenous formation of communication networks in situations where the economic possibilities of groups of players can be described by a cooperative game. We concentrate on the influence that the existence of costs for establishing communication links has on the communication networks that are formed. The starting points in this paper are two game-theoretic models of the formation of communication links that were studied in the literature fairly recently, the extensive-form model by Aumann and Myerson (1988) and the strategic-form model that was studied by Dutta et al. (1998). We follow their analyses as closely as possible and use an extension of the Myerson value to determine the payoffs to the players in communication situations when forming links is not costless. We find that it is possible that as the costs of establishing links increase, more links are formed.

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  • (*), Anne van den Nouweland & Marco Slikker, 2000. "original papers : Network formation models with costs for establishing links," Review of Economic Design, Springer;Society for Economic Design, vol. 5(3), pages 333-362.
    • Handle: RePEc:spr:reecde:v:5:y:2000:i:3:p:333-362
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    Cited by:

    1. Jeroen Suijs & Peter Borm & Herbert Hamers & Marieke Quant & Maurice Koster, 2005. "Communication and Cooperation in Public Network Situations," Annals of Operations Research, Springer, vol. 137(1), pages 117-140, July.
    2. Joost Vandenbossche & Thomas Demuynck, 2013. "Network Formation with Heterogeneous Agents and Absolute Friction," Computational Economics, Springer;Society for Computational Economics, vol. 42(1), pages 23-45, June.
    3. Pin, Paolo, 2011. "Eight degrees of separation," Research in Economics, Elsevier, vol. 65(3), pages 259-270, September.
    4. Dutta, Bhaskar & Ghosal, Sayantan & Ray, Debraj, 2005. "Farsighted network formation," Journal of Economic Theory, Elsevier, vol. 122(2), pages 143-164, June.
    5. Yung-Ming Li & Yong Tan & Prabuddha De, 2013. "Self-Organized Formation and Evolution of Peer-to-Peer Networks," INFORMS Journal on Computing, INFORMS, vol. 25(3), pages 502-516, August.
    6. Rodrigo Harrison & Roberto Munoz, 2003. "Global Games with Strategic Substitutes," Working Papers gueconwpa~03-03-07, Georgetown University, Department of Economics.
    7. Alexander Elbittar & Rodrigo Harrison & Roberto Muñoz, 2014. "Network Structure In A Link Formation Game: An Experimental Study," Economic Inquiry, Western Economic Association International, vol. 52(4), pages 1341-1363, October.
    8. Mutuswami, Suresh & Winter, Eyal, 2002. "Subscription Mechanisms for Network Formation," Journal of Economic Theory, Elsevier, vol. 106(2), pages 242-264, October.
    9. Alessio D'Ignazio & Emanuele Giovannetti, 2006. "From Exogenous To Endogenous Economic Networks: Internet Applications," Journal of Economic Surveys, Wiley Blackwell, vol. 20(5), pages 757-796, December.
    10. Jackson, Matthew O., 2005. "Allocation rules for network games," Games and Economic Behavior, Elsevier, vol. 51(1), pages 128-154, April.
    11. Teresa Estañ & Natividad Llorca & Ricardo Martínez & Joaquín Sánchez-Soriano, 2019. "On how to allocate the fixed cost of transport networks," ThE Papers 19/03, Department of Economic Theory and Economic History of the University of Granada..
    12. Teresa Estañ & Natividad Llorca & Ricardo Martínez & Joaquín Sánchez-Soriano, 2021. "On how to allocate the fixed cost of transport systems," Annals of Operations Research, Springer, vol. 301(1), pages 81-105, June.
    13. Audy, Jean-François & D’Amours, Sophie & Rönnqvist, Mikael, 2012. "An empirical study on coalition formation and cost/savings allocation," International Journal of Production Economics, Elsevier, vol. 136(1), pages 13-27.

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