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Information and Efficiency in Thin Buyer–Seller Markets over Random Networks

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  • Michiel Leur

    (Università Ca’ Foscari Venezia
    University of Amsterdam)

Abstract

More information in a market presumably leads to a higher allocative efficiency. In this paper, we study the relationship between the allocative efficiency of a market and the quantity of information about the realisation of the network structure that is available to its participants. We confine our study to thin buyer–seller markets with a few traders who can only trade together if they are linked. We assume that these links are independently formed with the same probability p, assembling a random bipartite graph à la Erdős–Rényi, and that traders behave strategically using linear markup strategies. Under these conditions we derive the equilibrium strategies, for complete and incomplete information about traders’ valuations. We demonstrate that the quantity of information that is available about the network structure has a non-monotonic effect on efficiency. Moreover, the shape of this non-monotonicity flips when we switch from complete to incomplete information about traders’ valuations. Under complete information about valuations it is recommended that traders receive either all the information about the network or nothing, and under incomplete information solely information about the existence of the own trading partners.

Suggested Citation

  • Michiel Leur, 2018. "Information and Efficiency in Thin Buyer–Seller Markets over Random Networks," Computational Economics, Springer;Society for Computational Economics, vol. 51(4), pages 1069-1095, April.
    • Handle: RePEc:kap:compec:v:51:y:2018:i:4:d:10.1007_s10614-017-9658-8
    DOI: 10.1007/s10614-017-9658-8
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    References listed on IDEAS

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    More about this item

    Keywords

    Bilateral trade; Allocative efficiency; Markup strategies; Random graphs;
    All these keywords.

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • 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

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