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Bilateral and Community Enforcement in a Networked Market with Simple Strategies

We present a model of repeated games in large buyer-seller networks in the presence of reputation networks via which buyers share information about past transactions. The model allows us to characterize cooperation networks - networks in which each seller cooperates (by providing high quality goods) with every buyer that is connected to her. To this end, we provide conditions under which: [1] the incentives of a seller s to cooperate depend only on her beliefs with respect to her local neighborhood - a subnetwork that includes seller s and is of a size that is independent of the size of the entire network; and [2] the incentives of a seller s to cooperate can be calculated as if the network was a random tree with seller s at its root. Our characterization sheds light on the welfare costs of relying only on repeated interactions for sustaining cooperation, and on how to mitigate such costs.

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Paper provided by Brown University, Department of Economics in its series Working Papers with number 2011-2.

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Date of creation: 2011
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Handle: RePEc:bro:econwp:2011-2
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Department of Economics, Brown University, Providence, RI 02912

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  18. Michi Kandori, 2010. "Social Norms and Community Enforcement," Levine's Working Paper Archive 630, David K. Levine.
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