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Trading networks of price-taking buyers and sellers

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  • Cho, Myeonghwan

Abstract

We consider a situation in which sellers and buyers trade divisible goods as price-takers in a network. We first characterize equilibrium market structures under which actual trading occurs through the links. Even when the sellers and buyers are connected in a network, several markets with different prices can appear in an equilibrium. The equilibrium market structure is essentially unique in the sense that each individual faces the same price and ends up with the same quantity traded in every equilibrium. We also show how the creation of additional links in the network affects the individual payoffs and the social welfare. A creation of a link can increase or decrease the payoffs of an individual seller or buyer, but it always weakly improves the social welfare.

Suggested Citation

  • Cho, Myeonghwan, 2021. "Trading networks of price-taking buyers and sellers," Journal of Economic Theory, Elsevier, vol. 196(C).
    • Handle: RePEc:eee:jetheo:v:196:y:2021:i:c:s0022053121001071
    DOI: 10.1016/j.jet.2021.105290
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    References listed on IDEAS

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    More about this item

    Keywords

    Trading network; Price-taker; Competitive equilibrium; Welfare effect;
    All these keywords.

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
    • D20 - Microeconomics - - Production and Organizations - - - General
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation

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