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Hierarchical Trade

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  • Hans Gersbach
  • Hans Haller

Abstract

Commodity trading is typically organized hierarchically: Large‐scale trade takes place at the global price system while individuals trade at local price systems within their countries. Agencies or trading houses establish the link between these different market places. In this paper, we devise a framework to study this type of hierarchical trade. We identify the free trade and the autarky equilibrium as polar cases. We show that no other two‐stage market equilibria exist if the commodity space is two‐dimensional. An example demonstrates that other, so‐called intermediate equilibria exist for three‐dimensional commodity spaces. We then provide an explicit construction of special classes of intermediate equilibria. Moreover, we study the consequences when some countries control the agency that organizes trade at the global level and we analyze the role of international goods arbitrage. Finally, we show that profit‐maximizing agencies may not promote free trade outcomes. (JEL D43, D50, F10)

Suggested Citation

  • Hans Gersbach & Hans Haller, 2018. "Hierarchical Trade," Economic Inquiry, Western Economic Association International, vol. 56(2), pages 1165-1184, April.
    • Handle: RePEc:bla:ecinqu:v:56:y:2018:i:2:p:1165-1184
    DOI: 10.1111/ecin.12513
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    Cited by:

    1. Hans Gersbach & Hans Haller, 2007. "Hierarchical Trade and Endogenous Price Distortions," CER-ETH Economics working paper series 07/72, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich.

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    More about this item

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • D50 - Microeconomics - - General Equilibrium and Disequilibrium - - - General
    • F10 - International Economics - - Trade - - - General

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