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Making friends meet: network formation with introductions

Author

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  • Jan-Peter Siedlarek

    (Federal Reserve Bank of Cleveland)

Abstract
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.

Suggested Citation

  • Jan-Peter Siedlarek, 2023. "Making friends meet: network formation with introductions," International Journal of Game Theory, Springer;Game Theory Society, vol. 52(4), pages 1037-1076, December.
    • Handle: RePEc:spr:jogath:v:52:y:2023:i:4:d:10.1007_s00182-023-00858-z
    DOI: 10.1007/s00182-023-00858-z
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    References listed on IDEAS

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    Cited by:

    1. in 't Veld, Daan & van der Leij, Marco & Hommes, Cars, 2020. "The formation of a core-periphery structure in heterogeneous financial networks," Journal of Economic Dynamics and Control, Elsevier, vol. 119(C).
    2. in 't Veld, Daan & van der Leij, Marco & Hommes, Cars, 2020. "The formation of a core-periphery structure in heterogeneous financial networks," Journal of Economic Dynamics and Control, Elsevier, vol. 119(C).

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    More about this item

    Keywords

    Networks; Network formation; Clustering; Structural holes; Intermediation; Introductions;
    All these keywords.

    JEL classification:

    • A14 - General Economics and Teaching - - General Economics - - - Sociology of Economics
    • D85 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Network Formation

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