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Communication networks in markets

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  • Gallo, Edoardo

Abstract

This paper proposes and tests experimentally a dynamic model of bargaining to analyze decentralized markets where buyers and sellers obtain information about past deals through their social network. There is a unique equilibrium in which every individual obtains the same outcome independent of their network position, and this outcome depends on the peripheral (least connected) individuals in the network. The main testable predictions are that networks with high density and/or low variability in the number of connections across individuals allow their members to obtain a better deal. These predictions are tested in a lab experiment through 4 treatments that vary the network that subjects are assigned to. The results of the experiment lend support to the theoretical predictions. Subjects converge to an outcome that is independent of their network position, and they fare better if they are assigned to a network that is dense and/or has low variability in number of connections across members.

Suggested Citation

  • Gallo, Edoardo, 2020. "Communication networks in markets," European Economic Review, Elsevier, vol. 129(C).
    • Handle: RePEc:eee:eecrev:v:129:y:2020:i:c:s0014292120301768
    DOI: 10.1016/j.euroecorev.2020.103545
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    More about this item

    Keywords

    Experiment; Network; Communication; Noncooperative bargaining; 50-50 Division;
    All these keywords.

    JEL classification:

    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games

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