One-way Flow Networks: the Role of Heterogeneity

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 symmetric connections across players are a peculiar feature of homogenous environments; by contrast, in heterogeneous settings players hold asymmetric connections which are accompanied by the emergence of central players. ∗I thank Sanjeev Goyal, Alessandro Lanteri, Caterina Marchionni, J.L. Moraga-Gonzalez, Alex Konovalov and Rob Van der Noll for useful comments. I also acknowledge the participants of the Nake Day 2003 in Amsterdam. †Tinbergen Institute & Econometric Institute, Erasmus University Rotterdam. E-mail: [email protected]