The Role of Middlemen in Efficient and Strongly Pairwise Stable Networks

CentER Discussion Paper No. 2004-64

Posted: 14 Oct 2004

See all articles by Robert P. Gilles

Robert P. Gilles

Queen's University Management School

Subhadip Chakrabarti

Virginia Polytechnic Institute & State University - Department of Economics

Sudipta Sarangi

Virginia Polytechnic Institute & State University

Narine Badasyan

Virginia Polytechnic Institute & State University - Department of Economics

Date Written: June 2004

Abstract

We examine the strong pairwise stability concept in network formation theory under collective network benefits. Strong pairwise stability considers a pair of players to add a link through mutual consent while permitting them to unilaterally delete any subset of links under their control. We examine the properties of strongly pairwise stable networks and find that players in middleman positions, who have the power to break up the network into multiple components, play a critical role in such networks. We show that for the component-wise egalitarian rule there is no conflict between the efficient and stable networks when these middlemen have no incentive to break up the network. Finally, we examine efficiency and stability in middleman-free networks.

Keywords: Networks, stability

JEL Classification: C71, C72

Suggested Citation

Gilles, Robert P. and Chakrabarti, Subhadip and Sarangi, Sudipta and Badasyan, Narine, The Role of Middlemen in Efficient and Strongly Pairwise Stable Networks (June 2004). CentER Discussion Paper No. 2004-64. Available at SSRN: https://ssrn.com/abstract=603282

Robert P. Gilles (Contact Author)

Queen's University Management School ( email )

25 University Sq
Belfast, Northern Ireland BT7 1NN
United Kingdom

Subhadip Chakrabarti

Virginia Polytechnic Institute & State University - Department of Economics ( email )

3021 Pamplin Hall
Blacksburg, VA 24061
United States

Sudipta Sarangi

Virginia Polytechnic Institute & State University ( email )

Blacksburg, VA 24061
United States

Narine Badasyan

Virginia Polytechnic Institute & State University - Department of Economics ( email )

3021 Pamplin Hall
Blacksburg, VA 24061
United States

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