Coordination in networks: An economic equilibrium analysis

Networks utilizing modern communication technologies can offer competitive advantages to those using them wisely. But due to the existence of network effects, planning and operating cooperation networks is difficult. In this paper, the strategic situation of individual agents deciding on network participation is analysed. A systematic equilibrium analysis using computer-based simulations reveals principal solution scenarios for network agents and shows that network cooperation problems might frequently be not as difficult to resolve as often feared. In particular, strategic situations are identified showing that a majority of individuals might be better off getting the optimal solution from a central principal and that in many cases simple information intermediation can solve the start-up problem notorious in network economics.