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Community Structure and Market Outcomes: A Repeated Games-in-Networks Approach

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  • Itay P. Fainmesser

Abstract

Consider a large market with asymmetric information, in which sellers have the option to "cheat" their buyers, and buyers decide whether to repurchase from different sellers. We model active trade relationships as links in a buyer-seller network and study repeated games in such networks. Endowing sellers with incomplete knowledge of the network, we derive conditions that determine whether a network is consistent with cooperation between every buyer and seller that are connected. Three network features reduce the minimal discount factor sufficient for cooperation: moderate and balanced competition, sparseness, and segregation. Incentive constraints are binding and rule out efficient networks. (JEL C73, D82, D85, Z13)

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Bibliographic Info

Article provided by American Economic Association in its journal American Economic Journal: Microeconomics.

Volume (Year): 4 (2012)
Issue (Month): 1 (February)
Pages: 32-69

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Handle: RePEc:aea:aejmic:v:4:y:2012:i:1:p:32-69

Note: DOI: 10.1257/mic.4.1.32
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Citations

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Cited by:
  1. Francesco Nava & Michele Piccione, 2011. "Efficiency in Repeated Two-Action Games with Local Monitoring," STICERD - Theoretical Economics Paper Series /2012/560, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
  2. Itay Fainmesser, 2014. "Exclusive Intermediation," Working Papers 2014-3, Brown University, Department of Economics.
  3. Francesco Nava & Michele Piccione, 2012. "Efficiency in repeated games with local interaction and uncertain local monitoring," LSE Research Online Documents on Economics 54250, London School of Economics and Political Science, LSE Library.
  4. Felipe Balmaceda & Juan Escobar, 2013. "Trust in Cohesive Communities," Working Papers 40, Facultad de Economía y Empresa, Universidad Diego Portales.
  5. Itay Fainmesser, 2010. "Social Networks and Unraveling in Labor Markets," Working Papers 2010-15, Brown University, Department of Economics.
  6. Itay P. Fainmesser & David A. Goldberg, 2011. "Bilateral and Community Enforcement in a Networked Market with Simple Strategies," Working Papers 2011-2, Brown University, Department of Economics.
  7. Nava, Francesco & Piccione, Michele, 2014. "Efficiency in repeated games with local interaction and uncertain local monitoring," Theoretical Economics, Econometric Society, vol. 9(1), January.

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