Coordination in a 3-player network formation game

We experimentally investigate the coordination behaviour in a finitely repeated network formation game between one seller and two buyers. If a competitive network is formed the seller gets the entire surplus. Buyers can prevent the competitive network from being formed by anti-coordinating their link offers. Alternatively the seller can -be induced to- coordinate the formation of the non-competitive network. The equilibria of the stage-game are strongly dependent on the link costs. Forming the competitive network is the only equilibrium using undominated strategies if there are no link costs. In the repeated game, however, both buyer anti-coordination and seller coordination on forming the non-competitive network are equilibria irrespective of the link costs. The experimental results show that the link costs do not significantly affect the seller’s or the buyers' link offers. We find evidence for both buyer anti-coordination and coordination facilitated by the seller regardless of the link costs. Interestingly, the number of coordinating groups does not increase with positive link costs.