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Trading Networks with Bilateral Contracts

Author

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  • Tam'as Fleiner
  • Zsuzsanna Jank'o
  • Akihisa Tamura
  • Alexander Teytelboym

Abstract

We consider a model of matching in trading networks in which firms can enter into bilateral contracts. In trading networks, stable outcomes, which are immune to deviations of arbitrary sets of firms, may not exist. We define a new solution concept called trail stability. Trail-stable outcomes are immune to consecutive, pairwise deviations between linked firms. We show that any trading network with bilateral contracts has a trail-stable outcome whenever firms' choice functions satisfy the full substitutability condition. For trail-stable outcomes, we prove results on the lattice structure, the rural hospitals theorem, strategy-proofness, and comparative statics of firm entry and exit. We also introduce weak trail stability which is implied by trail stability under full substitutability. We describe relationships between the solution concepts.

Suggested Citation

  • Tam'as Fleiner & Zsuzsanna Jank'o & Akihisa Tamura & Alexander Teytelboym, 2015. "Trading Networks with Bilateral Contracts," Papers 1510.01210, arXiv.org, revised May 2018.
  • Handle: RePEc:arx:papers:1510.01210
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    References listed on IDEAS

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    1. repec:eee:ecolet:v:156:y:2017:i:c:p:65-67 is not listed on IDEAS
    2. repec:eee:dyncon:v:82:y:2017:i:c:p:44-66 is not listed on IDEAS

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