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Stable Trading Structures in Bilateral Oligopolies

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  • Bloch, Francis
  • Ghosal, Sayantan

Abstract

This paper analyses the formation of trading groups in a bilateral market with strategic traders. A trading structure (a partition of the set of traders into trading groups) is strongly stable if no coalition of traders can deviate and increase the utility of some of its members while making no other member worse off. It is weakly stable if no coalition of traders can deviate and make all its members strictly better off. The only strongly stable trading structure is the grand coalition, where all agents trade on the same market. Other weakly stable trading structures exist and are characterized by a strong ordering property: trading groups can be ranked by size and cannot contain very different numbers of traders of the two types. In the particular example where traders have log-linear utility functions, the set of weakly stable trading structures is completely characterized.
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  • Bloch, Francis & Ghosal, Sayantan, 1997. "Stable Trading Structures in Bilateral Oligopolies," Journal of Economic Theory, Elsevier, vol. 74(2), pages 368-384, June.
    • Handle: RePEc:eee:jetheo:v:74:y:1997:i:2:p:368-384
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    More about this item

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • D51 - Microeconomics - - General Equilibrium and Disequilibrium - - - Exchange and Production Economies

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