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Intermediation in Networks

Author

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  • Jan-Peter Siedlarek

    (Department of Economics, European University Institute)

Abstract

This paper studies bargaining and exchange in a networked market with intermediation. Possibilities to trade are restricted through a network of existing relationships and traders bargain over the division of available gains from trade along different feasible routes. Using a stochastic model of bargaining, I characterize stationary equilibrium payoffs as the fixed point of a set of intuitive value function equations and study efficiency and the relationship between network structure and payoffs. In equilibrium, trade is never unduly delayed but it may take place too early and in states where delay would be efficient. The inefficiency arises from a hold-up threat and the inability of bargaining parties credibly to commit to a split in a future period. The model also shows how with competing trade routes as trade frictions go to zero agents that are not essential to a trade opportunity receive a payoff of zero.

Suggested Citation

  • Jan-Peter Siedlarek, 2012. "Intermediation in Networks," Working Papers 2012.42, Fondazione Eni Enrico Mattei.
  • Handle: RePEc:fem:femwpa:2012.42
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    References listed on IDEAS

    as
    1. Daniele Condorelli & Andrea Galeotti & Ludovic Renou, 2017. "Bilateral Trading in Networks," Review of Economic Studies, Oxford University Press, vol. 84(1), pages 82-105.
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    3. Arnold Polanski & Emiliya Lazarova, 2015. "Dynamic multilateral markets," International Journal of Game Theory, Springer;Game Theory Society, pages 815-833.
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    6. Corominas-Bosch, Margarida, 2004. "Bargaining in a network of buyers and sellers," Journal of Economic Theory, Elsevier, vol. 115(1), pages 35-77, March.
    7. Craig, Ben & von Peter, Goetz, 2014. "Interbank tiering and money center banks," Journal of Financial Intermediation, Elsevier, pages 322-347.
    8. Mihai Manea, 2011. "Bargaining in Stationary Networks," American Economic Review, American Economic Association, vol. 101(5), pages 2042-2080, August.
    9. Ray, Debraj, 2003. "Contemporary Macroeconomics," OUP Catalogue, Oxford University Press, number 9780195662146 edited by Bose, Amitava.
    10. Blume, Lawrence E. & Easley, David & Kleinberg, Jon & Tardos, Éva, 2009. "Trading networks with price-setting agents," Games and Economic Behavior, Elsevier, vol. 67(1), pages 36-50, September.
    11. Rachel E. Kranton & Deborah F. Minehart, 2001. "A Theory of Buyer-Seller Networks," American Economic Review, American Economic Association, vol. 91(3), pages 485-508, June.
    12. Kyle, Albert S, 1985. "Continuous Auctions and Insider Trading," Econometrica, Econometric Society, vol. 53(6), pages 1315-1335, November.
    13. Polanski, Arnold, 2007. "Bilateral bargaining in networks," Journal of Economic Theory, Elsevier, vol. 134(1), pages 557-565, May.
    14. Douglas M. Gale & Shachar Kariv, 2007. "Financial Networks," American Economic Review, American Economic Association, vol. 97(2), pages 99-103, May.
    15. Goyal, Sanjeev & Vega-Redondo, Fernando, 2007. "Structural holes in social networks," Journal of Economic Theory, Elsevier, vol. 137(1), pages 460-492, November.
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    Citations

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    Cited by:

    1. Polanski Arnold & Cardona Daniel, 2012. "Multilevel Mediation in Symmetric Trees," Review of Network Economics, De Gruyter, vol. 11(3), pages 1-23, September.
    2. Marco van der Leij & Daan in 't Veld & Cars Hommes, 2014. "The Formation of a Core Periphery Structure in Heterogeneous Financial Networks," Tinbergen Institute Discussion Papers 14-098/II, Tinbergen Institute, revised 11 Aug 2016.
    3. Matt Elliott & Francesco Nava, 2015. "Decentralized Bargaining: Efficiency and the Core," STICERD - Theoretical Economics Paper Series /2015/567, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
    4. BEDAYO, Mikel & MAULEON, Ana & VANNETELBOSCH, Vincent, 2012. "Bargaining and delay in trading networks," CORE Discussion Papers 2012046, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    5. Schopohl, Simon, 2017. "Information transmission in hierarchies," Center for Mathematical Economics Working Papers 570, Center for Mathematical Economics, Bielefeld University.
    6. repec:oup:jeurec:v:15:y:2017:i:4:p:784-817. is not listed on IDEAS
    7. Elliott, M. & Nava, F., 2017. "Decentralized Bargaining in Matching Markets: Efficient Stationary Equilibria and the Core," Cambridge Working Papers in Economics 1742, Faculty of Economics, University of Cambridge.
    8. Arnold Polanski & Emiliya Lazarova, 2015. "Dynamic multilateral markets," International Journal of Game Theory, Springer;Game Theory Society, pages 815-833.
    9. Bedayo, Mikel & Mauleon, Ana & Vannetelbosch, Vincent, 2016. "Bargaining in endogenous trading networks," Mathematical Social Sciences, Elsevier, vol. 80(C), pages 70-82.
    10. Nava, Francesco, 2015. "Efficiency in decentralized oligopolistic markets," Journal of Economic Theory, Elsevier, vol. 157(C), pages 315-348.
    11. Fabien Mercier, 2016. "Intermediary networks under the rule of equi-repartition of profits," Journal of Banking and Financial Economics, University of Warsaw, Faculty of Management, vol. 1(5), pages 39-63, June.

    More about this item

    Keywords

    Stochastic Games; Bargaining; Random Matching; Middlemen; Network;

    JEL classification:

    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
    • C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation

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