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Trading Networks with Bilateral Contracts

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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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    Cited by:

    1. P. Jean‐Jacques Herings & Yu Zhou, 2022. "Competitive Equilibria In Matching Models With Financial Constraints," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 63(2), pages 777-802, May.
    2. Ozan Candogan & Markos Epitropou & Rakesh V. Vohra, 2021. "Competitive Equilibrium and Trading Networks: A Network Flow Approach," Operations Research, INFORMS, vol. 69(1), pages 114-147, January.
    3. Adachi, Hiroyuki, 2017. "Stable matchings and fixed points in trading networks: A note," Economics Letters, Elsevier, vol. 156(C), pages 65-67.
    4. Ravi Jagadeesan & Scott Duke Kominers & Ross Rheingans-Yoo, 2020. "Lone wolves in competitive equilibria," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 55(2), pages 215-228, August.
    5. Scott Duke Kominers, 2024. "Respect for Improvements and Comparative Statics in Matching Markets," The Journal of Mechanism and Institution Design, Society for the Promotion of Mechanism and Institution Design, University of York, vol. 9(1), pages 83-104, December.
    6. Yokote, Koji, 2021. "Consistency of the doctor-optimal equilibrium price vector in job-matching markets," Journal of Economic Theory, Elsevier, vol. 197(C).
    7. Leduc, Matt V. & Thurner, Stefan, 2017. "Incentivizing resilience in financial networks," Journal of Economic Dynamics and Control, Elsevier, vol. 82(C), pages 44-66.
    8. Schlegel, Jan Christoph, 2022. "The structure of equilibria in trading networks with frictions," Theoretical Economics, Econometric Society, vol. 17(2), May.
    9. Kasuya, Yusuke, 2021. "Group incentive compatibility and welfare for matching with contracts," Economics Letters, Elsevier, vol. 202(C).
    10. Juan F. Fung & Chia-Ling Hsu, 2021. "A cumulative offer process for supply chain networks," Review of Economic Design, Springer;Society for Economic Design, vol. 25(1), pages 93-109, June.

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