Communication network formation with link specificity and value transferability

► A model on strategic formation of communication networks is proposed. ► The negative externality of link specificity (LS) is introduced. ► The positive externality of value transferability (VT) is confined to part of value. ► Without VT, many nonstandard networks can be pairwise stable. ► VT offer...

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Bibliographic Details
Published in:European journal of operational research 2013-08, Vol.229 (1), p.199-211
Main Authors: Harmsen - van Hout, Marjolein J.W., Herings, P. Jean-Jacques, Dellaert, Benedict G.C.
Format: Article
Language:English
Subjects:
Bilateral communication links
Communication
Communications networks
Link specificity
Mathematical models
Operations research
Repair & maintenance
Social vs. informational value
Strategic network formation
Studies
Value transferability
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Summary:► A model on strategic formation of communication networks is proposed. ► The negative externality of link specificity (LS) is introduced. ► The positive externality of value transferability (VT) is confined to part of value. ► Without VT, many nonstandard networks can be pairwise stable. ► VT offers efficiency via fragmentation with high LS and densification with low LS. We model strategic communication network formation with (i) link specificity: link maintenance lowers specific attention and thus value (negative externality previously ignored for communication) and (ii) value transferability via indirect links for informational but not for social value (positive externality modeled uniformly before). Assuming only social value, the pairwise stable set includes many nonstandard networks under high and particular combinations of complete components under low link specificity. Allowing for social and informational value reduces this set to certain fragmented networks under high and the complete network under low link specificity. These extremes are efficient, whereas intermediate link specificity generates inefficiency.
ISSN:0377-2217
1872-6860
DOI:10.1016/j.ejor.2013.02.028