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A Theory of Buyer-Seller Networks

Author

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  • Rachel E. Kranton
  • Deborah F. Minehart

Abstract

This paper introduces a new model of exchange: networks, rather than markets, of buyers and sellers. It begins with the empirically motivated premise that a buyer and seller must have a relationship, a "link," to exchange goods. Networks--buyers, sellers, and the pattern of links connecting them--are common exchange environments. This paper develops a methodology to study network structures and explains why agents may form networks. In a model that captures characteristics of a variety of industries, the paper shows that buyers and sellers, acting strategically in their own self-interests, can form the network structures that maximize overall welfare.

Suggested Citation

  • Rachel E. Kranton & Deborah F. Minehart, 2001. "A Theory of Buyer-Seller Networks," American Economic Review, American Economic Association, vol. 91(3), pages 485-508, June.
  • Handle: RePEc:aea:aecrev:v:91:y:2001:i:3:p:485-508
    Note: DOI: 10.1257/aer.91.3.485
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    References listed on IDEAS

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    More about this item

    JEL classification:

    • D40 - Microeconomics - - Market Structure, Pricing, and Design - - - General
    • L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General

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