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Type: Journal article
Title: Bilateral trading in networks
Author: Condorelli, D.
Galeotti, A.
Renou, L.
Citation: The Review of Economic Studies, 2017; 84(1):82-105
Publisher: Oxford University Press
Issue Date: 2017
ISSN: 0034-6527
Statement of
Daniele Condorelli, Andrea Galeotti and Ludovic Renou
Abstract: In many markets, goods flow from initial producers to final customers travelling through many layers of intermediaries and information is asymmetric. We study a dynamic model of bargaining in networks that captures these features.We show that the equilibrium price demanded over time is non-monotonic, but the sequence of transaction prices declines over time, with the possible exception of the last period. The price dynamic is, therefore, reminiscent of fire-sales and hot-potato trading. Traders who intermediate the object arise endogenously and make a positive profit. The profit-earning intermediaries are not necessarily traders with many connections; for the case of multilayer networks, they belong to the path that reaches the maximum number of potential buyers using the minimal number of intermediaries. This is not necessarily the path of the network that maximizes the probability of consumption by traders who value the most the object (i.e. welfare).
Keywords: Asymmetric information; bargaining; bilateral trading; networks
Rights: © The Author 2016. Published by Oxford University Press on behalf of The Review of Economic Studies Limited.
RMID: 0030066035
DOI: 10.1093/restud/rdw034
Appears in Collections:Economics publications

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