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Efficiency in decentralized oligopolistic markets

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  • Nava, Francesco

Abstract

The paper analyzes quantity competition in economies in which a network describes the set of feasible trades. A model is presented in which the identity of buyers, of sellers, and of intermediaries is endogenously determined by the trade flows in the economy. The analysis first considers small economies, and provides sufficient conditions for equilibrium existence, a characterization of prices and flows, and some negative results relating welfare to network structure. The second and central part of the analysis considers behavior in large markets, and presents necessary and sufficient conditions on the network structure for equilibria to be approximately efficient when the number of players is large.

Suggested Citation

  • Nava, Francesco, 2015. "Efficiency in decentralized oligopolistic markets," Journal of Economic Theory, Elsevier, vol. 157(C), pages 315-348.
    • Handle: RePEc:eee:jetheo:v:157:y:2015:i:c:p:315-348
    DOI: 10.1016/j.jet.2015.01.009
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    References listed on IDEAS

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    1. Daniele Condorelli & Andrea Galeotti & Ludovic Renou, 2017. "Bilateral Trading in Networks," Review of Economic Studies, Oxford University Press, vol. 84(1), pages 82-105.
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    5. John William Hatfield & Scott Duke Kominers, 2012. "Matching in Networks with Bilateral Contracts," American Economic Journal: Microeconomics, American Economic Association, vol. 4(1), pages 176-208, February.
    6. Kalai, Ehud & Postlewaite, Andrew & Roberts, John, 1978. "Barriers to trade and disadvantageous middlemen: Nonmonotonicity of the core," Journal of Economic Theory, Elsevier, vol. 19(1), pages 200-209, October.
    7. Corominas-Bosch, Margarida, 2004. "Bargaining in a network of buyers and sellers," Journal of Economic Theory, Elsevier, vol. 115(1), pages 35-77, March.
    8. Abreu, Dilip & Manea, Mihai, 2012. "Bargaining and efficiency in networks," Journal of Economic Theory, Elsevier, vol. 147(1), pages 43-70.
    9. Mihai Manea, 2011. "Bargaining in Stationary Networks," American Economic Review, American Economic Association, vol. 101(5), pages 2042-2080, August.
    10. Rachel E. Kranton & Deborah F. Minehart, 2001. "A Theory of Buyer-Seller Networks," American Economic Review, American Economic Association, vol. 91(3), pages 485-508, June.
    11. Jan-Peter Siedlarek, 2012. "Intermediation in Networks," Working Papers 2012.42, Fondazione Eni Enrico Mattei.
    12. Polanski, Arnold, 2007. "Bilateral bargaining in networks," Journal of Economic Theory, Elsevier, vol. 134(1), pages 557-565, May.
    13. Michael Ostrovsky, 2008. "Stability in Supply Chain Networks," American Economic Review, American Economic Association, vol. 98(3), pages 897-923, June.
    14. Condorelli, Daniele & Galeotti, Andrea, 2012. "Bilateral Trading in Networks," Economics Discussion Papers 24004, University of Essex, Department of Economics.
    15. David M. Kreps & Jose A. Scheinkman, 1983. "Quantity Precommitment and Bertrand Competition Yield Cournot Outcomes," Bell Journal of Economics, The RAND Corporation, vol. 14(2), pages 326-337, Autumn.
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    Citations

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    Cited by:

    1. Desmond Cai & Subhonmesh Bose & Adam Wierman, 2019. "On the Role of a Market Maker in Networked Cournot Competition," Mathematics of Operations Research, INFORMS, vol. 44(3), pages 1122-1144, August.
    2. Ana Babus & Péter Kondor, 2018. "Trading and Information Diffusion in Over‐the‐Counter Markets," Econometrica, Econometric Society, vol. 86(5), pages 1727-1769, September.
    3. Yasuhiro Shirata, 2020. "Evolution of a Collusive Price in a Networked Market," Dynamic Games and Applications, Springer, vol. 10(2), pages 528-554, June.
    4. Itkonen, Juha, 2017. "Efficiency and dependency in a network of linked permit markets," Research Discussion Papers 20/2017, Bank of Finland.
    5. Kostas Bimpikis & Shayan Ehsani & Rahmi İlkılıç, 2019. "Cournot Competition in Networked Markets," Management Science, INFORMS, vol. 67(6), pages 2467-2481, June.
    6. Hase, Ryo & Shinomiya, Norihiko, 2016. "A mathematical modeling technique with network flows for social welfare maximization in deregulated electricity markets," Operations Research Perspectives, Elsevier, vol. 3(C), pages 59-66.
    7. Chen, Jun & Elliott, Matthew & Koh, Andrew, 2023. "Capability accumulation and conglomeratization in the information age," Journal of Economic Theory, Elsevier, vol. 210(C).
    8. Zenou, Yves & Jackson, Matthew O. & Rogers, Brian, 2016. "Networks: An economic perspective," CEPR Discussion Papers 11452, C.E.P.R. Discussion Papers.
    9. repec:zbw:bofrdp:2017_020 is not listed on IDEAS
    10. Goyal, S., 2016. "Networks and Markets," Cambridge Working Papers in Economics 1652, Faculty of Economics, University of Cambridge.
    11. Daniele Condorelli & Andrea Galeotti & Vasiliki Skreta, 2018. "Selling through referrals," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 27(4), pages 669-685, October.
    12. Chen, J. & Elliott, M. & Koh, A., 2020. "Capability Accumulation and Conglomeratization in the Information Age," Cambridge Working Papers in Economics 2069, Faculty of Economics, University of Cambridge.
    13. Barauskaite, Kristina & Nguyen, Anh D.M., 2021. "Global intersectoral production network and aggregate fluctuations," Economic Modelling, Elsevier, vol. 102(C).
    14. Thành Nguyen & Karthik Kannan, 2021. "Welfare Implications in Intermediary Networks," Information Systems Research, INFORMS, vol. 32(2), pages 378-393, June.
    15. Leduc, Mathieu V., 2024. "Simple relational contracts and the dynamics of social capital," Games and Economic Behavior, Elsevier, vol. 145(C), pages 27-53.
    16. Itkonen, Juha, 2017. "Efficiency and dependency in a network of linked permit markets," Bank of Finland Research Discussion Papers 20/2017, Bank of Finland.

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    More about this item

    Keywords

    Decentralized markets; Intermediation; Oligopoly; Efficiency; Market power;
    All these keywords.

    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • D6 - Microeconomics - - Welfare Economics
    • D85 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Network Formation
    • C7 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory

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