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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
Contact details of provider: Postal: Department of Economics, Brown University, Providence, RI 02912

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  17. John McMillan & Christopher Woodruff, 1998. "Interfirm Relationships and Informal Credit in Vietnam," William Davidson Institute Working Papers Series 132, William Davidson Institute at the University of Michigan.
  18. Markus Kinateder, 2006. "Repeated Games Played in a Network," UFAE and IAE Working Papers 674.06, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).
  19. Hardle, Wolfgang & Kirman, Alan, 1995. "Nonclassical demand : A model-free examination of price-quantity relations in the Marseille fish market," Journal of Econometrics, Elsevier, vol. 67(1), pages 227-257, May.
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