Equilibria and centrality in link formation games

Abstract

We study non-cooperative link formation games in which players have to decide how much to invest in connections with other players. The relationship between equilibrium strategies and network centrality measures are investigated in games where there is a common valuation of players as friends. The utility from links is a weighted sum of Cobb–Douglas functions, the weights representing the common valuation. If the Cobb–Douglas functions are bilinear and the link formation cost is not too high, then indegree, eigenvector centrality, and the Katz–Bonacich centrality measure put the players in opposite order than the common valuation. The same result holds for non-negligible link formation costs if the Cobb–Douglas functions are separately concave but not jointly concave. If the Cobb–Douglas functions are strictly concave, then at the interior equilibrium these measures order the players in the same way as the common valuation.