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Endogenous Trading Networks

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  • Daniele Condorelli

    ()

  • Andrea Galeotti

    ()

Abstract

We investigate the effects of a class of trading protocols on the architecture and efficiency properties of endogenously formed trading networks. In our model, the opportunity to sell valuable objects occurs randomly to different individuals. A sale can only be realized if two individuals are connected, directly or indirectly, but forming and maintaining a trading relation is a costly investment. When the outcome of trading is efficient and provides no intermediation rents, a tension between equilibrium and efficient networks emerges when the cost of forming a link is at an intermediate level. There are two types of inefficiencies. Either all equilibrium networks are under- connected when compared to efficient networks, or a multiplicity of equilibriam may exist and agents may fail to coordinate on the efficient equilibrium network

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Paper provided by University of Essex, Department of Economics in its series Economics Discussion Papers with number 705.

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Date of creation: 01 Mar 2012
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Handle: RePEc:esx:essedp:705

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  1. Daniele Condorelli & Andrea Galeotti, 2012. "Bilateral Trading in Networks," Economics Discussion Papers 704, University of Essex, Department of Economics.
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Cited by:
  1. Marc de Kamps & Daniel Ladley & Aistis Simaitis, 2012. "Heterogeneous Beliefs in Over-The-Counter Markets," Discussion Papers in Economics 13/03, Department of Economics, University of Leicester, revised Sep 2013.
  2. BEDAYO, Mikel & MAULEON, Ana & VANNETELBOSCH, Vincent, 2012. "Bargaining and delay in trading networks," CORE Discussion Papers 2012046, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).

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