Making friends meet: network formation with introductions

This paper proposes a parsimonious model of network formation with introductions in the presence of intermediation rents. Introductions allow two nodes to form a new connection on favorable terms with the help of a common neighbor. The decision to form links via introductions is subject to a trade-o...

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Bibliographic Details
Published in:International journal of game theory 2023-12, Vol.52 (4), p.1037-1076
Main Author: Siedlarek, Jan-Peter
Format: Article
Language:English
Subjects:
Behavioral/Experimental Economics
Clustering
Economic Theory/Quantitative Economics/Mathematical Methods
Economics
Economics and Finance
Game Theory
Network formation
Nodes
Operations Research/Decision Theory
Original Paper
Rents
Social and Behav. Sciences
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Summary:This paper proposes a parsimonious model of network formation with introductions in the presence of intermediation rents. Introductions allow two nodes to form a new connection on favorable terms with the help of a common neighbor. The decision to form links via introductions is subject to a trade-off between the gains from having a direct connection at lower cost and the potential losses for the introducer from lower intermediation rents. When nodes take advantage of introductions, stable networks tend to exhibit a minimum amount of clustering. At the same time, intermediary nodes have incentives to protect their position, and stable networks can exhibit nodes exploiting structural holes, that is, bridges across otherwise unconnected parts of the network earning intermediation rents.
ISSN:0020-7276
1432-1270
DOI:10.1007/s00182-023-00858-z