Network Games Made Simple

49 Pages Posted: 30 Sep 2022

See all articles by Yves Zenou

Yves Zenou

Stockholm University; Monash University - Department of Economics; Research Institute of Industrial Economics (IUI); IZA Institute of Labor Economics; Centre for Economic Policy Research (CEPR)

Junjie Zhou

Tsinghua University - Tsinghua University School of Economics and Management

Date Written: September 27, 2022

Abstract

Most network games assume that the best response of a player is a linear function of the actions of her neighbors; clearly, this is a restrictive assumption. We developed a theory called sign-equivalent transformation (SET) underlying the mathematical structure behind a system of equations defining the Nash equilibrium. By applying our theory, we reveal that many network models in the existing literature, including those with nonlinear best responses, can be transformed into games with best-response potentials after appropriate restructuring of equilibrium conditions using SET. Thus, through our theory, we produce a unified framework that provides conditions for existence and uniqueness of equilibrium for most network games with both linear and nonlinear best-response functions. We also provide novel economic insights for both the existing network models and the new ones we develop in this study.

Keywords: network games, nonlinear best responses, sign-equivalent transformation, variational inequalities, best-response potential

JEL Classification: C62, C72, D85, H41, Z13

Suggested Citation

Zenou, Yves and Zenou, Yves and Zhou, Junjie, Network Games Made Simple (September 27, 2022). Available at SSRN: https://ssrn.com/abstract=4225140 or http://dx.doi.org/10.2139/ssrn.4225140

Yves Zenou (Contact Author)

Monash University - Department of Economics ( email )

Australia

Stockholm University ( email )

Universitetsvägen 10
Stockholm, Stockholm SE-106 91
Sweden

Research Institute of Industrial Economics (IUI) ( email )

P.O. Box 5501
S-114 85 Stockholm
Sweden

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Junjie Zhou

Tsinghua University - Tsinghua University School of Economics and Management ( email )

Beijing
China

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