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Trading in Networks: Theory and Experiments

Author

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  • Syngjoo Choi
  • Andrea Galeotti
  • Sanjeev Goyal

Abstract

We propose a model of posted prices in networks. The model maps traditional concepts of market power, competition, and double marginalization into networks, allowing for the study of pricing in complex structures of intermediation, such as supply chains, transportation and communication networks, and financial brokerage. We provide a complete characterization of equilibrium prices. Our experiments complement our theoretical work and point to node criticality as an organizing principle for understanding pricing, efficiency, and the division of surplus in networked markets.

Suggested Citation

  • Syngjoo Choi & Andrea Galeotti & Sanjeev Goyal, 2017. "Trading in Networks: Theory and Experiments," Journal of the European Economic Association, European Economic Association, vol. 15(4), pages 784-817.
  • Handle: RePEc:oup:jeurec:v:15:y:2017:i:4:p:784-817.
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    Citations

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    Cited by:

    1. Alexei P Kireyev & Andrei Leonidov, 2016. "A Network Model of Multilaterally Equilibrium Exchange Rates," IMF Working Papers 16/130, International Monetary Fund.
    2. repec:eee:streco:v:47:y:2018:i:c:p:35-45 is not listed on IDEAS
    3. Goyal, S., 2018. "Heterogeneity and Networks," Cambridge Working Papers in Economics 1812, Faculty of Economics, University of Cambridge.
    4. repec:hrv:hksfac:35165081 is not listed on IDEAS
    5. Edoardo Gallo & Chang Yan, 2015. "Effciency and equilibrium in network games: An experiment," Cambridge Working Papers in Economics 1546, Faculty of Economics, University of Cambridge.
    6. Kotowski, Maciej H. & Leister, C. Matthew, 2018. "Trading Networks and Equilibrium Intermediation," Working Paper Series rwp18-001, Harvard University, John F. Kennedy School of Government.
    7. Syngjoo Choi & Edoardo Gallo & Shachar Kariv, 2015. "Networks in the laboratory," Cambridge Working Papers in Economics 1551, Faculty of Economics, University of Cambridge.
    8. repec:eee:gamebe:v:109:y:2018:i:c:p:565-581 is not listed on IDEAS
    9. Christoph Aymanns & Co-Pierre Georg & Benjamin Golub, 2017. "Illiquidity spirals in Coupled Over-The-Counter Markets," Working Papers on Finance 1810, University of St. Gallen, School of Finance.
    10. repec:eee:telpol:v:39:y:2015:i:7:p:608-622 is not listed on IDEAS
    11. Kariv, Shachar & Kotowski, Maciej H. & Leister, C. Matthew, 2018. "Liquidity risk in sequential trading networks," Games and Economic Behavior, Elsevier, vol. 109(C), pages 565-581.

    More about this item

    JEL classification:

    • C70 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - General
    • C71 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Cooperative Games
    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
    • D40 - Microeconomics - - Market Structure, Pricing, and Design - - - General

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