From Exogenous to Endogenous Economic Networks: Internet Applications
University of Cambridge Economics Working Paper No. CWPE 0445
70 Pages Posted: 18 Sep 2004
Date Written: July 2004
Economic agents' behavior is affected by their position in a network, either exogenous or endogenous, in which they interact with a subset of neighbours only. The network's links, which may be generated by vertical and/or horizontal relations, or by more complex morphologies, may explain the transition between dynamic equilibria and the instability of economic aggregates. Moreover, networks shape strategic interaction among agents by determining their strategies; the problem of access and interconnection, particularly relevant in the Internet, is perhaps the best example. A two-way feedback between strategies and network structures arises instead when links are endogenous: those features are clearly shown in the mechanism underlying the formation of peering links and R & D networks.
Keywords: Vertical restraints, network formation, Internet, peering
JEL Classification: L42, L14, D85, L86
Suggested Citation: Suggested Citation