Emergence and Evolution of Coalitions in Buyer-Seller Networks

Abstract

We investigate the dynamics of the creation, development, and breakup of social networks formed by coalitions of agents. As an application, we consider coalition formation in a consumer electronic market. In our model, agents have benefits and costs from establishing a social network by participating in a coalition. Buyers benefit in terms of volume discount and better match of their preferences. Sellers benefit in terms of better predictability of sales volumes. The model allows us to investigate the stability and size of the coalitions as well as the performance of the market in terms of utility of the agents. We find that the system exhibits three different dominating regimes: individual purchasing behaviour, i.e., no social network exists among the agents, formation of several heterogenous coalitions, i.e., a number of social networks which are not connected, as well as condensation to a giant coalition, i.e., a social network involving all agents.