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Competition for Goods in Buyer-Seller Networks

Author

Listed:
  • Rachel E. Kranton

    (Dept. Economics, Univ. Maryland)

  • Deborah F. Minehart

    (Dept. Economics, Boston Univ.)

Abstract

The organization of supply relations varies across industries. This paper builds a theoretical framework to compare three alternative supply structures: vertical integration, networks, and markets. The analysis considers the relationship between uncertainty in demand for specific inputs, investment costs, and industrial structure. It shows that network structures are more likely when productive assets are expensive and firms experience large idiosyncratic shocks in demand. The analysis is supported by existing evidence and provides empirical predictions as to the shape of different industries.

Suggested Citation

  • Rachel E. Kranton & Deborah F. Minehart, 1999. "Competition for Goods in Buyer-Seller Networks," Cowles Foundation Discussion Papers 1232, Cowles Foundation for Research in Economics, Yale University.
  • Handle: RePEc:cwl:cwldpp:1232
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    File URL: http://cowles.yale.edu/sites/default/files/files/pub/d12/d1232.pdf
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    References listed on IDEAS

    as
    1. Hart, Oliver & Moore, John, 1990. "Property Rights and the Nature of the Firm," Journal of Political Economy, University of Chicago Press, vol. 98(6), pages 1119-1158, December.
    2. Roth,Alvin E. & Sotomayor,Marilda A. Oliveira, 1992. "Two-Sided Matching," Cambridge Books, Cambridge University Press, number 9780521437882.
    3. Gale, Douglas, 1987. "Limit theorems for markets with sequential bargaining," Journal of Economic Theory, Elsevier, vol. 43(1), pages 20-54, October.
    4. Demange, Gabrielle & Gale, David & Sotomayor, Marilda, 1986. "Multi-Item Auctions," Journal of Political Economy, University of Chicago Press, vol. 94(4), pages 863-872, August.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Mauleon, Ana & Sempere-Monerris, Jose J. & Vannetelbosch, Vincent J., 2011. "Networks of manufacturers and retailers," Journal of Economic Behavior & Organization, Elsevier, vol. 77(3), pages 351-367, March.
    2. Rodrigo J. Harrison & Roberto Munoz, 2003. "Stability and Equilibrium Selection in a Link Formation Game," Game Theory and Information 0306004, EconWPA.
    3. Erkal, Nisvan, 2007. "Buyer-supplier interaction, asset specificity, and product choice," International Journal of Industrial Organization, Elsevier, vol. 25(5), pages 988-1010, October.
    4. Felipe Balmaceda, 2004. "Network Formation and Cooperation," Econometric Society 2004 Latin American Meetings 208, Econometric Society.
    5. Bloch, Francis & Genicot, Garance & Ray, Debraj, 2008. "Informal insurance in social networks," Journal of Economic Theory, Elsevier, vol. 143(1), pages 36-58, November.
    6. Dutta, Bhaskar & Ghosal, Sayantan & Ray, Debraj, 2005. "Farsighted network formation," Journal of Economic Theory, Elsevier, vol. 122(2), pages 143-164, June.
    7. Rachel E. Kranton & Deborah F. Minehart, 2002. "Vertical Foreclosure and Specific Investments," Economics Working Papers 0013, Institute for Advanced Study, School of Social Science.
    8. Antonio Quesada, 2004. "Networks and market laws," Microeconomics 0407002, EconWPA.
    9. Matthew O. Jackson, 2003. "A Survey of Models of Network Formation: Stability and Efficiency," Game Theory and Information 0303011, EconWPA.
    10. Matthew O. Jackson, 2002. "The Stability and Efficiency of Economic and Social Networks," Microeconomics 0211011, EconWPA.

    More about this item

    Keywords

    Bipartite graphs; outside options; link externalities;

    JEL classification:

    • C70 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - General
    • D20 - Microeconomics - - Production and Organizations - - - General
    • D40 - Microeconomics - - Market Structure, Pricing, and Design - - - General
    • L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General
    • L20 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - General

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