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Chain stability in trading networks

Author

Listed:
  • Kominers, Scott Duke

    (Entrepreneurial Management Unit, Harvard Business School, Department of Economics and Center of Mathematical Sciences and Applications, Harvard University, and National Bureau of Economic Research)

  • Hatfield, John William

    (McCombs School of Business, University of Texas at Austin)

  • Nichifor, Alexandru

    (Economics Department, University of Melbourne)

  • Ostrovsky, Michael

    (Graduate School of Business, Stanford University and National Bureau of Economic Research)

  • Westkamp, Alexander

    (Department of Management, Economics and Social Sciences, University of Cologne)

Abstract

In a general model of trading networks with bilateral contracts, we propose a suitably adapted chain stability concept that plays the same role as pairwise stability in two-sided settings. We show that chain stability is equivalent to stability if all agents' preferences are jointly fully substitutable and satisfy the Laws of Aggregate Supply and Demand. In the special case of trading networks with transferable utility, an outcome is consistent with competitive equilibrium if and only if it is chain stable.

Suggested Citation

  • Kominers, Scott Duke & Hatfield, John William & Nichifor, Alexandru & Ostrovsky, Michael & Westkamp, Alexander, 2021. "Chain stability in trading networks," Theoretical Economics, Econometric Society, vol. 16(1), January.
    • Handle: RePEc:the:publsh:3839
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    References listed on IDEAS

    as
    1. Crawford, Vincent P & Knoer, Elsie Marie, 1981. "Job Matching with Heterogeneous Firms and Workers," Econometrica, Econometric Society, vol. 49(2), pages 437-450, March.
    2. Manjunath, Vikram & Westkamp, Alexander, 2021. "Strategy-proof exchange under trichotomous preferences," Journal of Economic Theory, Elsevier, vol. 193(C).
    3. Klaus, Bettina & Walzl, Markus, 2009. "Stable many-to-many matchings with contracts," Journal of Mathematical Economics, Elsevier, vol. 45(7-8), pages 422-434, July.
    4. 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.
    5. Ning Sun & Zaifu Yang, 2006. "Equilibria and Indivisibilities: Gross Substitutes and Complements," Econometrica, Econometric Society, vol. 74(5), pages 1385-1402, September.
    6. Tommy ANDERSSON & Ágnes CSEH & Lars EHLERS & Albin ERLANSON, 2018. "Organizing Time Banks : Lessons from Matching Markets," Cahiers de recherche 11-2018, Centre interuniversitaire de recherche en économie quantitative, CIREQ.
    7. Candogan, Ozan & Epitropou, Markos & Vohra, Rakesh V., 2016. "Competitive Equilibrium and Trading Networks: A Network Flow Approach," Economics Series 323, Institute for Advanced Studies.
    8. Hatfield, John William & Kominers, Scott Duke, 2017. "Contract design and stability in many-to-many matching," Games and Economic Behavior, Elsevier, vol. 101(C), pages 78-97.
    9. Roth, Alvin E, 1984. "Stability and Polarization of Interests in Job Matching," Econometrica, Econometric Society, vol. 52(1), pages 47-57, January.
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    13. Tamás Fleiner & Ravi Jagadeesan & Zsuzsanna Jankó & Alexander Teytelboym, 2019. "Trading Networks With Frictions," Econometrica, Econometric Society, vol. 87(5), pages 1633-1661, September.
    14. Ning Sun & Zaifu Yang, 2009. "A Double-Track Adjustment Process for Discrete Markets With Substitutes and Complements," Econometrica, Econometric Society, vol. 77(3), pages 933-952, May.
    15. Michael Ostrovsky, 2008. "Stability in Supply Chain Networks," American Economic Review, American Economic Association, vol. 98(3), pages 897-923, June.
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    Citations

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    Cited by:

    1. Chao Huang, 2023. "Multilateral matching with scale economies," Papers 2310.19479, arXiv.org.
    2. Schlegel, Jan Christoph, 2022. "The structure of equilibria in trading networks with frictions," Theoretical Economics, Econometric Society, vol. 17(2), May.
    3. Candogan, Ozan & Epitropou, Markos & Vohra, Rakesh V., 2016. "Competitive Equilibrium and Trading Networks: A Network Flow Approach," Economics Series 323, Institute for Advanced Studies.
    4. Chao Huang, 2024. "A dynamic auction for multilateral collaboration," Papers 2411.06545, arXiv.org.
    5. Tam'as Fleiner & Zsuzsanna Jank'o & Akihisa Tamura & Alexander Teytelboym, 2015. "Trading Networks with Bilateral Contracts," Papers 1510.01210, arXiv.org, revised May 2018.
    6. Delacrétaz, David & Kominers, Scott Duke & Nichifor, Alexandru, 2020. "Comparative statics for size-dependent discounts in matching markets," Journal of Mathematical Economics, Elsevier, vol. 90(C), pages 127-131.

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    More about this item

    Keywords

    Matching; trading networks; chain stability; stability; competitive equilibria; full substitutability; Laws of Aggregate Supply and Demand;
    All these keywords.

    JEL classification:

    • C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
    • D85 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Network Formation
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation

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