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A Laboratory Investigation of Networked Markets

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  • A. Cassar
  • D. Friedman
  • P.H. Schneider

Abstract

When contracts are not perfectly enforceable, can interpersonal networks improve market efficiency? We introduce certain exogenous networks into laboratory markets in which traders can cheat in 'international' but not in 'domestic' transactions. We examine four network configurations, one of which has the potential to achieve 100% efficiency. Theoretical upper bounds correctly predict the main qualitative trade patterns across our network configurations but overpredict observed efficiency. Our networks increase international trade volume, reduce domestic volume and divert high surplus transactions to international networks. Copyright © The Author(s). Journal compilation © Royal Economic Society 2009.

Suggested Citation

  • A. Cassar & D. Friedman & P.H. Schneider, 2010. "A Laboratory Investigation of Networked Markets," Economic Journal, Royal Economic Society, vol. 120(547), pages 919-943, September.
  • Handle: RePEc:ecj:econjl:v:120:y:2010:i:547:p:919-943
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    File URL: http://www.blackwell-synergy.com/doi/abs/10.1111/j.1468-0297.2009.02326.x
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    Cited by:

    1. Aidin Hajikhameneh & Erik O. Kimbrough, 2017. "Individualism, Collectivism, and Trade," Discussion Papers dp17-01, Department of Economics, Simon Fraser University.
    2. Syngjoo Choi & Edoardo Gallo & Shachar Kariv, 2015. "Networks in the laboratory," Cambridge Working Papers in Economics 1551, Faculty of Economics, University of Cambridge.

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