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Intermediation in Networks

  • Jan-Peter Siedlarek

    (Department of Economics, European University Institute)

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.

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Paper provided by Fondazione Eni Enrico Mattei in its series Working Papers with number 2012.42.

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Date of creation: May 2012
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Handle: RePEc:fem:femwpa:2012.42
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  1. Douglas M. Gale & Shachar Kariv, 2007. "Financial Networks," American Economic Review, American Economic Association, vol. 97(2), pages 99-103, May.
  2. Mihai Manea, 2011. "Bargaining in Stationary Networks," American Economic Review, American Economic Association, vol. 101(5), pages 2042-80, August.
  3. Daniele Condorelli & Andrea Galeotti, 2012. "Bilateral Trading in Networks," Economics Discussion Papers 704, University of Essex, Department of Economics.
  4. Kyle, Albert S, 1985. "Continuous Auctions and Insider Trading," Econometrica, Econometric Society, vol. 53(6), pages 1315-35, November.
  5. Corominas-Bosch, Margarida, 2004. "Bargaining in a network of buyers and sellers," Journal of Economic Theory, Elsevier, vol. 115(1), pages 35-77, March.
  6. Arnold Polanski & Emiliya A. Lazarova, 2013. "Dynamic Multilateral Markets," University of East Anglia Applied and Financial Economics Working Paper Series 039, School of Economics, University of East Anglia, Norwich, UK..
  7. Ana Babus, 2011. "Strategic Relationships in Over-the-Counter Markets," 2011 Meeting Papers 1405, Society for Economic Dynamics.
  8. Craig, Ben R. & von Peter, Goetz, 2010. "Interbank tiering and money center banks," Discussion Paper Series 2: Banking and Financial Studies 2010,12, Deutsche Bundesbank, Research Centre.
  9. Merlo, Antonio & Wilson, Charles A, 1995. "A Stochastic Model of Sequential Bargaining with Complete Information," Econometrica, Econometric Society, vol. 63(2), pages 371-99, March.
  10. 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.
  11. Brusco, Sandro & Jackson, Matthew O., 1999. "The Optimal Design of a Market," Journal of Economic Theory, Elsevier, vol. 88(1), pages 1-39, September.
  12. Polanski, Arnold, 2007. "Bilateral bargaining in networks," Journal of Economic Theory, Elsevier, vol. 134(1), pages 557-565, May.
  13. Goyal, Sanjeev & Vega-Redondo, Fernando, 2007. "Structural holes in social networks," Journal of Economic Theory, Elsevier, vol. 137(1), pages 460-492, November.
  14. Upper, Christian & Worms, Andreas, 2002. "Estimating Bilateral Exposures in the German Interbank Market: Is there a Danger of Contagion?," Discussion Paper Series 1: Economic Studies 2002,09, Deutsche Bundesbank, Research Centre.
  15. Blume, Lawrence E. & Easley, David & Kleinberg, Jon & Tardos, √Čva, 2009. "Trading networks with price-setting agents," Games and Economic Behavior, Elsevier, vol. 67(1), pages 36-50, September.
  16. Ray, Debraj, 2003. "Contemporary Macroeconomics," OUP Catalogue, Oxford University Press, number 9780195662146 edited by Bose, Amitava, March.
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