We develop a simple multilayer network model in which agents allocate effort across layers with heterogeneous structures, subject to an aggregate effort constraint. Incentives are shaped by agents’ network positions within each layer, and equilibrium behavior reflects both within- and cross-layer interactions. We analyze how shocks propagate through the network and characterize optimal targeting interventions. Our results show that effective policy design must account for effort allocation across layers. We also demonstrate that predictions from monolayer models can diverge sharply from those of multilayer models, underscoring the importance of accounting for network complexity in both empirical and policy analyses.

We study price competition and entry of platforms in multi-sided markets. Utilizing the simplicity of the equilibrium pricing formula in our setting with heterogeneity of customers’ membership benefits, we demonstrate that in the presence of externalities, the standard effects of competition can be reversed: as platform competition increases, prices, and platform profits can go up and consumer surplus can go down. We identify economic forces that jointly determine the social inefficiency of the free-entry equilibrium and provide conditions under which free entry is socially excessive as well as an example in which free entry is socially insufficient.

We study a coordination game among agents in a network. The agents choose whether to take action (e.g. adopting a new technology) in an uncertain environment that yields increasing value in the actions of neighbours. We develop an algorithm that fully partitions the network into communities (coordination sets) within which agents have the same propensity to adopt. Our main finding is that a novel measure of network connectedness, which we term “social connectedness,” determines the propensity to adopt for each agent. Social connectedness captures both the number of links each agent has within her community (interconnectedness) as well as the number of links she has with members of other communities who have a higher propensity to adopt (embeddedness). There is a single coordination set if and only if the network is balanced—that is, the average degree of each subnetwork is no larger than the average degree of the network. Finally, we demonstrate that contagion is localized within coordination sets, such that a shock to an agent uniformly affects this agent and all members of her coordination set but has no impact on the other agents in the network.