Networks and Markets: The dynamic impacts of information, matching and transaction costs on global trade
AbstractThe purpose of this paper is to explore strategic incentives to use trade networks rather than markets and to shed light on the dynamic relations between two distinct trading systems: a formal system of markets and a decentralised system of networks. We investigate the issues by mainly focusing on the role of matching in a trade network. The existing literature emphasises the importance of information transmission in achieving efficiency in repeated personal transactions under perfect observability. By contrast, we show that a folk theorem may hold if we change the way traders are matched, without introducing any information sharing. We also examine different stages of an evolution of trading system. The study states conditions under which agents prefer to trade on networks rather than in markets.
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Bibliographic InfoPaper provided by The Centre for Decision Research and Experimental Economics, School of Economics, University of Nottingham in its series Discussion Papers with number 2009-22.
Date of creation: Nov 2009
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Trade networks; Repeated games; Matching; Uncertainty; Transaction costs; Institutional dynamics;
Find related papers by JEL classification:
- F10 - International Economics - - Trade - - - General
- C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
- D01 - Microeconomics - - General - - - Microeconomic Behavior: Underlying Principles
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-12-19 (All new papers)
- NEP-GTH-2009-12-19 (Game Theory)
- NEP-NET-2009-12-19 (Network Economics)
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