Networks and Markets. The dynamic impacts of information, matching and transaction costs on trade
AbstractThe purpose of this paper is to explore strategic incentives to use trade networks rather than markets and shed light on the dynamic relation between the two distinct trading systems: a formal system of markets and a decentralised system of networks. We investigate the issues in the infinitely repeated multi-player prisoner's dilemma game with random matching. The existing literature emphasises the importance of information transmission in sustaining long-run cooperation 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 the 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 2010-07.
Date of creation: May 2010
Date of revision:
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Repeated trade; Moral hazard; Matching; Transaction costs; Networks; Institutions;
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
- D02 - Microeconomics - - General - - - Institutions: Design, Formation, and Operations
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