One-Way Flow Networks: The Role of Heterogeneity

Abstract

I study a one-way flow connections model in which players are heterogeneous with respect to values and the costs of establishing a link. I first show that values and costs asymmetries are crucial in determining the level of connectedness of a network. Interestingly, unconnected equilibria are asymmetric and central players may emerge. Second, I show that non-singleton components have a wheel architecture as far as the costs of linking are not partner specific. Otherwise also the flower architecture constitutes an equilibrium. I interpret these results as saying that asymmetric connections across players are a peculiar feature of homogeneous environments; by contrast, in heterogeneous settings players hold asymmetric connections, which are accompanied by the emergence of central players.

Keywords: Networks, heterogeneity

JEL Classification: D85, C72