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, ? 1) 2 + 2(n ? 2) + 1)(V i (g) + V j ) ? 0, Moreover, we have 2?
, We show that if i, j ? N t , t ? {1, 2}, and V i (g) ? V j (g), then g(i) ? g(j)
V j (g), then c i (g) ? c j (g). If j ? g(j), then firm j has formed a link with j in g ,
, By Proposition 2 since c i (g) ? c j (g) and v j ,j = v j ,i = v, then there is a link between firms j and i in g
, We show that if i, j ? N t , t ? {1, 2}, then we have either g(i) ? g(j) or g(j) ? g(i)
, we have V i (g) ? V j (g), or V j (g) ? V i (g). By 1., in the first case we have g(i) ? g(j), and in the second case we have g(j) ? g(i)
Let a binary relation on N t be defined as in (??). Then is the vicinal preorder of g ,
Consider a firm i ? N such that |g(i)| ? |g(j)|, i.e., V i (g) ? V j (g) for every firm j ? N ,
, We distinguish between two cases. First, i is the only firm in N 1 who has formed links. Consider a link ij ? g with j ? N 2 and a firm k ? N 1. We build the network g with g = g ? ij + ik. Suppose that v I = v O. It is clear that W (g ) = W (g)
, Since the number of links is the same in g and g , it is sufficient to show that ? > 0 to establish the lemma. We do this in two steps
,
, using the same reasoning as in the proof of Proposition 2, point 2, we can conclude that ? ? 0 for v M = v L implies ? > 0 for v M > v L
, By using similar arguments as in the proof of Corollary 4, we establish that if i, j ? N t , t ? {H, L}, and V i (g) ? V j (g), then g(i) ? g(j). It follows that if sub-network g
, NSG and there is no link between firms in N L and firms in N H. By construction, there exists a firm, say i L ? N L , such that g(i L ) = ?. We now build the network g similar to g except that every firm j L ? g(i L ) replaces its link with i L by a link with i H ? N H, By Lemma, vol.1
suppose g is such that for firm i H ? N H we have |g(i H )| ? |g(i L )| > 0 for some i L ? N L. By applying the same arguments as in the proof of point 4 of Corollary 3, we obtain a contradiction. Second, if g is such that for each i H ? N H we have |g(i H )| < |g(i L )| for all i L ? N L ,
By Lemma 4, given in Appendix D, we know that network g that maximizes the total profit contains a link between firms j and j since it contains a link between firms i and i. Moreover, since the assumptions of Property PCS are satisfied, network g that maximizes the total consumer surplus contains a link between firms j and j since it contains a link between firms i and i. It follows that if v i,i = v j ,
Let v j,j = v j,j ? v i,i > 0. By the previous point we have W (V(g; v j,j ? v j,j , |g|+1) > W (V(g), |g|), and by property PW, we have W (V(g; v j,j , |g|+1) > W ,