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Competition for Goods in Buyer-Seller Networks

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Author Info

  • Rachel E. Kranton

    (Dept. Economics, Univ. Maryland)

  • Deborah F. Minehart

    (Dept. Economics, Boston Univ.)

Abstract

The organization of supply relations varies across industries. This paper builds a theoretical framework to compare three alternative supply structures: vertical integration, networks, and markets. The analysis considers the relationship between uncertainty in demand for specific inputs, investment costs, and industrial structure. It shows that network structures are more likely when productive assets are expensive and firms experience large idiosyncratic shocks in demand. The analysis is supported by existing evidence and provides empirical predictions as to the shape of different industries.

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File URL: http://cowles.econ.yale.edu/P/cd/d12a/d1232.pdf
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Bibliographic Info

Paper provided by Cowles Foundation for Research in Economics, Yale University in its series Cowles Foundation Discussion Papers with number 1232.

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Length: 38 pages
Date of creation: 1999
Date of revision:
Publication status: Published in Review of Economic Design (September 2000), 5(3): 301-331
Handle: RePEc:cwl:cwldpp:1232

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Postal: Cowles Foundation, Yale University, Box 208281, New Haven, CT 06520-8281 USA

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References

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  1. Hart, Oliver & Moore, John, 1990. "Property Rights and the Nature of the Firm," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 98(6), pages 1119-58, December.
  2. Douglas Gale, 2010. "Limit theorems for markets with sequential bargaining," Levine's Working Paper Archive 621, David K. Levine.
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Citations

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Cited by:
  1. Matthew O. Jackson, 2003. "A Survey of Models of Network Formation: Stability and Efficiency," Game Theory and Information, EconWPA 0303011, EconWPA.
  2. Mauleon, Ana & Sempere-Monerris, Jose J. & Vannetelbosch, Vincent J., 2011. "Networks of manufacturers and retailers," Journal of Economic Behavior & Organization, Elsevier, vol. 77(3), pages 351-367, March.
  3. Rodrigo J. Harrison & Roberto Munoz, 2003. "Stability and Equilibrium Selection in a Link Formation Game," Game Theory and Information, EconWPA 0306004, EconWPA.
  4. Nisvan Erkal, 2003. "Buyer-Supplier Interaction, Asset Specificity, And Product Choice," Department of Economics - Working Papers Series, The University of Melbourne 885, The University of Melbourne.
  5. Bhaskar Dutta & Sayantan Ghosal & Debraj Ray, 2004. "Farsighted Network Formation," Working papers 122, Centre for Development Economics, Delhi School of Economics.
  6. Matthew O. Jackson, 2002. "The Stability and Efficiency of Economic and Social Networks," Microeconomics, EconWPA 0211011, EconWPA.
  7. Felipe Balmaceda, 2004. "Network Formation and Cooperation," Econometric Society 2004 Latin American Meetings, Econometric Society 208, Econometric Society.
  8. Antonio Quesada, 2004. "Networks and market laws," Microeconomics, EconWPA 0407002, EconWPA.

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