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Strict Nash networks and partner heterogeneity

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Abstract

This paper extends the two-way flow model of network formation initiated by Bala and Goyal (Econometrica 68(5):1181–1230, 2000) by allowing for partner heterogeneity. In our model if a player i forms a link with player j, then she pays a cost of c j and gets benefits of V j . Our main result consists of the characterization of strict Nash networks. We find that the introduction of partner heterogeneity plays a major role in dramatically increasing the set of strict Nash equilibria. This result differs substantially from what Galeotti et al. (Games Econ Behav 54(2):353–372, 2006) find in the two-way flow connections model of network formation with player heterogeneity.

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Authors and Affiliations

  1. Gate Lyon-Saint-Etienne, Ecully, France

    Pascal Billand & Christophe Bravard

  2. DIW Berlin and Department of Economics, Louisiana State University, Baton Rouge, LA, 70803, USA

    Sudipta Sarangi

Authors
  1. Pascal Billand
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  2. Christophe Bravard
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  3. Sudipta Sarangi
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Correspondence to Sudipta Sarangi.

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Billand, P., Bravard, C. & Sarangi, S. Strict Nash networks and partner heterogeneity. Int J Game Theory 40, 515–525 (2011). https://doi.org/10.1007/s00182-010-0252-8

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  • DOI: https://doi.org/10.1007/s00182-010-0252-8

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