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Hierarchical Trade

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  • Gersbach, Hans
  • Haller, Hans

Abstract

We study the allocation of commodities through a two-stage hierarchy of competitive markets. Groups or countries trade at global prices while individuals within a group trade at local prices. We identify the free trade and the autarky equilibrium as polar cases. We show that no other two-stage market equilibria exist if the commodity space is two-dimensional. An example demonstrates that other, so-called intermediate equilibria exist for three dimensional commodity spaces. We give two existence proofs for intermediate equilibria in higher dimensions. Each proof provides an explicit construction of special classes of intermediate equilibria. Finally, we consider the consequences for welfare and trade flows when some countries control the agency that organizes trade at the global level.

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Bibliographic Info

Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 7764.

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Date of creation: Mar 2010
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Handle: RePEc:cpr:ceprdp:7764

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Related research

Keywords: control of trading platforms; Hierarchical trade; intermediate equilibria;

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References

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  1. DEBREU, Gérard, . "Economies with a finite set of equilibria," CORE Discussion Papers RP -67, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  2. Matthias Lutz, 2004. "Pricing in Segmented Markets, Arbitrage Barriers, and the Law of One Price: Evidence from the European Car Market," Review of International Economics, Wiley Blackwell, vol. 12(3), pages 456-475, 08.
  3. CITANNA, Alessandro & CRES, Herve & DREZE, Jacques & HERINGS, Jean-Jacques & VILLANACCI, Antonio, 2001. "Continua of underemployment equilibria reflecting coordination failures, also at Walrasian prices," Les Cahiers de Recherche 732, HEC Paris.
  4. Mas-Colell, Andreu & Whinston, Michael D. & Green, Jerry R., 1995. "Microeconomic Theory," OUP Catalogue, Oxford University Press, number 9780195102680.
  5. Bell, Clive, 2003. "Development Policy as Public Finance," OUP Catalogue, Oxford University Press, number 9780198773672.
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Cited by:
  1. Hans Gersbach & Hans Haller, 2007. "Hierarchical Trade and Endogenous Price Distortions," CER-ETH Economics working paper series 07/72, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich.

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