Andrea Galeotti

Network Formation with Heterogeneous Players

This paper studies network formation in settings where players are heterogeneous with respect to benefits as well as the costs of forming links. Our results demonstrate that centrality, center-sponsorship and short network diameter are robust features of equilibrium networks. We find that in a society with many groups, where it is cheaper to connect within groups as compared to across groups, strategic play by individuals leads to a network architecture in which there is a core group which is entirely internally connected while all the other groups are entirely externally linked and hence completely fragmented. Since internal/within group links are cheaper to form, this implies that individual incentives may generate a significant waste of valuable social resources.

Strategic information transmission networks

We study a model of multi-player communication. Privately informed decision makers have different preferences about the actions they take, and communicate to influence each othersʼ actions in their favor. We prove that the equilibrium capability of any player to send a truthful message to a set of players depends not only on the preference composition of those players, but also on the number of players truthfully communicating with each one of them. We establish that the equilibrium welfare depends not only on the number of truthful messages sent in equilibrium, but also on how evenly truthful messages are distributed across decision makers.

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 asymmetric connections across players are a peculiar feature of homogeneous environments; by contrast, in heterogeneous settings players hold asymmetric connections, which are accompanied by the emergence of central players.

Endogenous Job Contact Networks

We develop a model where workers, anticipating the risk of becoming unemployed, invest in connections in order to access information about available jobs that other workers may have. The investment in connections is high when the job separation rate in the labor market is moderate, whereas it is low for either low or high levels of job separation rate. The equilibrium response of network investment to changes in the labor market conditions generates novel empirical predictions. In particular, the probability that a worker finds a new job via his connections increases in the separation rate when the separation rate is low, whereas it decreases when the separation rate is high. These predictions are supported by the empirical patterns that we document for the U.K. labor market.

Talking, Searching, and Pricing

I study the implications of interpersonal communication for incentives for consumers to acquire information and firms pricing behavior. Firms market a homogeneous product and choose its price; consumers acquire price information at some cost to themselves. Also, each consumer accesses the information acquired by a sample of other consumers-interpersonal communication. An exogenous increase in the level of interpersonal communication decreases the information that consumers acquire, and, when search costs are low, firms price less aggressively. In an extension, consumers may choose to invest in interpersonal communication at some cost. A decrease in the costs of interpersonal communication decreases firms competition.

Strategic Targeted Advertising

We present a strategic game of pricing and targeted-advertising. Firms cansimultaneously target priceadvertisements to different groups of customers, or to the entiremarket. Pure strategy equilibria do not exist and thus marketsegmentation cannot occur surely. Equilibria exhibit random advertising--to induce an unequal distribution of information in the market-- andrandom pricing --to obtain profits from badly informed buyers--. Wecharacterize a positive profits equilibrium where firms advertise lowprices to a segment of consumers, high prices to a distinct segment ofconsumers, and intermediate prices to the entire market. As a resultthe market is segmented only from time to time and presentssubstantial price dispersion across segments.

The Value of Network Information

The business model of companies such as Facebook, MySpace, and Twitter, relies on monetizing the information on the interactions and influences of their users. How valuable is such information, and is its use beneficial or detrimental for consumer welfare? We study these questions in a model where a monopoly sells a network good and may price discriminate using network information: information on consumers influences and/or on consumers susceptibilities to influence. Our framework incorporates a rich set of market products, including goods characterized by global and local network effects. We derive results on the value of network information and determine under which conditions, relative to uniform price, consumer surplus increases. We demonstrate the applicability of our framework using survey data on various types of relationships.

Diffusion and protection across a random graph

We study the interplay between the diffusion of a harmful state in a network of contacts and the possibility of individual agents to undertake costly investment to protect themselves against infection. We characterize how equilibrium diffusion outcomes, such as the immunization rate, total prevalence and welfare, respond to changes in the architecture of the network, and show that these responses depend on the details of the diffusion process.

Network Multipliers: The Optimality of Targeting Neighbors

Abstract A firm wishes to inform a community of individuals about its product. Information travels within the community because of the social interactions between individuals. We establish that social interactions appear in a firms payoff as a network multiplier, which is increasing both in the mean and in the variance of the distribution of connections. We then show that the degree distribution of a neighbor first order dominates the degree distribution of a node; so a firm must pick the neighbor of a node rather than a node itself as the target of communication. The advantages of employing an indirect communication strategy are greater in more dispersed networks.

The Market for Influence

Recent developments in social media have morphed the age-old practice of paying influential individuals for product endorsements into a multibillion-dollar industry, extending well beyond celebrity sponsorships. We develop a parsimonious model in which influencers trade off the increased revenue they obtain from paid endorsements with the negative impact that these have on their followers’ engagement and, therefore, on the price influencers receive from marketers. The model provides testable predictions that match suggestive evidence on pricing of paid endorsements, reveals a novel type of inefficiency that emerges in this market, and clarifies the role of search technology and advice transparency in shaping market activity. In particular, we show that recent policies that make paid endorsements more transparent can backfire, whereas an increase in the effectiveness of the search technology that matches followers to influencers has both direct and strategic positive welfare effects.