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Network formation and the structure of the commercial World Wide Web

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We model the commercial World Wide Web (WWW) as a directed graph emerging as the equilibrium of a game in which utility maximizing Web sites (nodes) purchase in-links from one another. In a world where consumers 'surf' on the WWW, sites' revenues/profits originate from two sources: (i) the sales of content (products) to consumers, and (ii) the sales of links (traffic) to other sites. A key feature of our model is that we consider sites to be heterogeneous in terms of their "content", i.e., their inherent value to consumers. We find that the equilibrium structure of such a graph matches the general empirical features of the WWW, especially with respect to the similarity of degree distributions between in- and out-links. In equilibrium, links tend to originate from low content sites toward high content ones. The larger the market size, the more sites tend to specialize in terms of their revenue model: either selling content or selling traffic. In an extension, we also consider network formation in the presence of search engines and find that the higher the proportion of people using these, the more sites have an incentive to specialize in certain "content areas". Finally, we explore a dynamic network formation process and show that it converges to the predicted equilibrium as additional sites join the network.

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