Formation of Decentralized Manufacturer-Supplier Networked Market
AbstractThis paper studies trading in a two-sided market where firms strategically form a network. In a networked market, manufacturers and suppliers must be connected by links for trading. We show that if no contingent contract is available, then any pairwise Nash stable network is inefficient. Each supplier under-invests in links (a hold-up problem). If a contract contingent on direct links is available and link cost is low, then the under-investment problem solves. Furthermore, the complete network resulting in the Walrasian outcome is uniquely pairwise Nash stable. However, this outcome is also inefficient. A new hold-up problem, over-investment in links, arises.
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Bibliographic InfoPaper provided by Institute of Economic Research, Hitotsubashi University in its series Global COE Hi-Stat Discussion Paper Series with number gd11-186.
Date of creation: Apr 2011
Date of revision:
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-05-24 (All new papers)
- NEP-COM-2011-05-24 (Industrial Competition)
- NEP-NET-2011-05-24 (Network Economics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Bloch, Francis & Jackson, Matthew, 2004.
"The Formation of Networks with Transfers among Players,"
1194, California Institute of Technology, Division of the Humanities and Social Sciences.
- Bloch, Francis & Jackson, Matthew O., 2007. "The formation of networks with transfers among players," Journal of Economic Theory, Elsevier, vol. 133(1), pages 83-110, March.
- Matthew O. Jackson & Francis Bloch, 2004. "The Formation of Networks with Transfers among Players," Working Papers 2004.80, Fondazione Eni Enrico Mattei.
- Francis Bloch & Matthew Jackson, 2006. "Definitions of equilibrium in network formation games," International Journal of Game Theory, Springer, vol. 34(3), pages 305-318, October.
- Douglas Gale & Hamid Sabourian, 2005. "Complexity and Competition," Econometrica, Econometric Society, vol. 73(3), pages 739-769, 05.
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