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Formation of buyer-seller trade networks in a quality-differentiated product market

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  • Ping Wang
  • Alison Watts

Abstract

We examine the formation of buyer-seller links when exchange can take place only if such a link exists. Sellers produce products of different qualities, and multiple sellers can form a sellers' association to pool their customers setting uniform prices. Buyers form trade links with individual sellers or sellers' associations. We show which buyer-seller links will form and find the set of links that are stable and show how these links influence prices. We also show that a trade network mismatch may occur where a high-quality good remains unsold even without an economy-wide excess supply of goods.

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Bibliographic Info

Article provided by Canadian Economics Association in its journal Canadian Journal of Economics.

Volume (Year): 39 (2006)
Issue (Month): 3 (August)
Pages: 971-1004

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Handle: RePEc:cje:issued:v:39:y:2006:i:3:p:971-1004

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Cited by:
  1. Vignes, Annick & Etienne, Jean-Michel, 2011. "Price formation on the Marseille fish market: Evidence from a network analysis," Journal of Economic Behavior & Organization, Elsevier, Elsevier, vol. 80(1), pages 50-67.
  2. Hemant Patil, 2011. "Buyer–seller networks with demand shocks and intermediation," Review of Economic Design, Springer, Springer, vol. 15(2), pages 121-145, June.
  3. Ana, MAULEON & José, SEMPERE-MONERRIS & Vincent, VANNETELBOSCH, 2005. "Networks of Manufacturers and Retailers," Discussion Papers (ECON - Département des Sciences Economiques), Université catholique de Louvain, Département des Sciences Economiques 2005036, Université catholique de Louvain, Département des Sciences Economiques.
  4. Dutta, Bhaskar & Ghosal, Sayantan & Ray, Debraj, 2005. "Farsighted network formation," Journal of Economic Theory, Elsevier, Elsevier, vol. 122(2), pages 143-164, June.
  5. CAULIER, Jean-François & MAULEON, Ana & SEMPERE-MONERRIS, José J. & VANNETELBOSCH, Vincent, 2011. "Stable and efficient coalitional networks," CORE Discussion Papers, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) 2011039, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  6. Matthew O. Jackson, 2003. "A survey of models of network formation: Stability and efficiency," Working Papers, California Institute of Technology, Division of the Humanities and Social Sciences 1161, California Institute of Technology, Division of the Humanities and Social Sciences.
  7. CAULIER, Jean-François & MAULEON, Ana & VANNETELBOSCH, Vincent, 2008. "Contractually stable networks," CORE Discussion Papers, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) 2008066, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  8. Francis Bloch (GREQAM and Universite de la Mediterranee), Garance Genicot (Georgetown University, and Debraj Ray (New York University and Instituto de Analisis Economico (CSIC)), 2004. "Informal Insurance in Social Networks," Working Papers, Georgetown University, Department of Economics gueconwpa~04-04-16, Georgetown University, Department of Economics.

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