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Exclusive intermediation in unobservable networks

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  • Fainmesser, Itay P.

Abstract

In many markets, clients engage repeatedly but infrequently in mutually beneficial, trust-intensive interactions with an agent (e.g., markets with investors and entrepreneurs, borrowers and lenders, experience goods, and short-term apartment rentals). To study the role of intermediaries in such markets, we develop a new model of partially observable trust networks, and characterize networks that are robust to variations in market participants' beliefs with respect to the network structure. We show that in all robust networks, intermediaries who have exclusivity over a large enough number of interaction opportunities are essential to overcome incentive problems that would otherwise shut down the market. We argue our methodology could be applied more generally to the study of network games in which individuals can eliminate links, and thus offers an alternative to the often-made assumption that all individuals perfectly observe the network.

Suggested Citation

  • Fainmesser, Itay P., 2019. "Exclusive intermediation in unobservable networks," Games and Economic Behavior, Elsevier, vol. 113(C), pages 533-548.
  • Handle: RePEc:eee:gamebe:v:113:y:2019:i:c:p:533-548
    DOI: 10.1016/j.geb.2018.10.011
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    More about this item

    Keywords

    Robust networks; Intermediation; Long-term relationships; Governance; Community enforcement; Trust; Social capital; Cooperation;
    All these keywords.

    JEL classification:

    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation

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