Network Formation and Economic Applications

Networks, generically, refer to any application of graph theory in economics. Consider an undirected graph where nodes represent players and links represent relationships between them. Players can both form and delete links by which we mean that they can both form new relationships and terminate exi...

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Main Author: Chakrabarti, Subhadip
Other Authors: Economics
Format: Others
Published: Virginia Tech 2011
Subjects:
Online Access:http://hdl.handle.net/10919/11256
http://scholar.lib.vt.edu/theses/available/etd-09202004-142218
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spelling ndltd-VTETD-oai-vtechworks.lib.vt.edu-10919-112562020-09-29T05:34:30Z Network Formation and Economic Applications Chakrabarti, Subhadip Economics Lutz, Nancy A. Sarangi, Sudipta Stegeman, Mark Eckel, Catherine C. Gilles, Robert P. Haller, Hans H. Comparative Advertising Nash Equilibrium Strong Pairwise Stability Private Peering Permission Value Networks, generically, refer to any application of graph theory in economics. Consider an undirected graph where nodes represent players and links represent relationships between them. Players can both form and delete links by which we mean that they can both form new relationships and terminate existing ones. A stable network is one in which no incentives exist to change the network structure. There can be various forms of stability depending on how many links players are allowed to form or delete at a time. Under strong pairwise stability, each player is allowed to delete any number of links at a time while any pair of players can form one link at a time. We introduce a network-value function, which assigns to each possible network a certain value. The value is allocated according to the component-wise egalitarian allocation rule, which divides the value generated by a component equally among members of the component (where a component refers to a maximally connected subgraph). An efficient network is one that maximizes the network value function. We show that there is an underlying conflict between strong pairwise stability and efficiency. Efficient networks are not necessarily strongly pairwise stable. This conflict can be resolved only if value functions satisfy a certain property called "middlemen-security". We further find that there is a broad class of networks called "middlemen-free networks" for which the above condition is automatically satisfied under all possible value functions. We also look at three network applications. A peering contract is an arrangement between Internet Service Providers under which they exchange traffic with one another free of cost. We analyze incentives for peering contracts among Internet service providers using the notion of pairwise stability. A hierarchy is a directed graph with an explicit top-down structure where each pair of linked agents have a superior-subordinate relationship with each other. We apply the notion of conjunctive permission value to demonstrate the formation of hierarchical firms in a competitive labor market. Comparative or targeted advertising is defined as any form of advertising where a firm directly or indirectly names a competitor. We also examine a model of targeted advertising between oligopolistic firms using non-cooperative game theoretic tools. Ph. D. 2011-08-22T19:06:47Z 2011-08-22T19:06:47Z 2004-09-14 2004-09-20 2004-09-29 2004-09-29 Dissertation etd-09202004-142218 http://hdl.handle.net/10919/11256 http://scholar.lib.vt.edu/theses/available/etd-09202004-142218 dissertation24.pdf In Copyright http://rightsstatements.org/vocab/InC/1.0/ ETD application/pdf Virginia Tech
collection NDLTD
format Others
sources NDLTD
topic Comparative Advertising
Nash Equilibrium
Strong Pairwise Stability
Private Peering
Permission Value
spellingShingle Comparative Advertising
Nash Equilibrium
Strong Pairwise Stability
Private Peering
Permission Value
Chakrabarti, Subhadip
Network Formation and Economic Applications
description Networks, generically, refer to any application of graph theory in economics. Consider an undirected graph where nodes represent players and links represent relationships between them. Players can both form and delete links by which we mean that they can both form new relationships and terminate existing ones. A stable network is one in which no incentives exist to change the network structure. There can be various forms of stability depending on how many links players are allowed to form or delete at a time. Under strong pairwise stability, each player is allowed to delete any number of links at a time while any pair of players can form one link at a time. We introduce a network-value function, which assigns to each possible network a certain value. The value is allocated according to the component-wise egalitarian allocation rule, which divides the value generated by a component equally among members of the component (where a component refers to a maximally connected subgraph). An efficient network is one that maximizes the network value function. We show that there is an underlying conflict between strong pairwise stability and efficiency. Efficient networks are not necessarily strongly pairwise stable. This conflict can be resolved only if value functions satisfy a certain property called "middlemen-security". We further find that there is a broad class of networks called "middlemen-free networks" for which the above condition is automatically satisfied under all possible value functions. We also look at three network applications. A peering contract is an arrangement between Internet Service Providers under which they exchange traffic with one another free of cost. We analyze incentives for peering contracts among Internet service providers using the notion of pairwise stability. A hierarchy is a directed graph with an explicit top-down structure where each pair of linked agents have a superior-subordinate relationship with each other. We apply the notion of conjunctive permission value to demonstrate the formation of hierarchical firms in a competitive labor market. Comparative or targeted advertising is defined as any form of advertising where a firm directly or indirectly names a competitor. We also examine a model of targeted advertising between oligopolistic firms using non-cooperative game theoretic tools. === Ph. D.
author2 Economics
author_facet Economics
Chakrabarti, Subhadip
author Chakrabarti, Subhadip
author_sort Chakrabarti, Subhadip
title Network Formation and Economic Applications
title_short Network Formation and Economic Applications
title_full Network Formation and Economic Applications
title_fullStr Network Formation and Economic Applications
title_full_unstemmed Network Formation and Economic Applications
title_sort network formation and economic applications
publisher Virginia Tech
publishDate 2011
url http://hdl.handle.net/10919/11256
http://scholar.lib.vt.edu/theses/available/etd-09202004-142218
work_keys_str_mv AT chakrabartisubhadip networkformationandeconomicapplications
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