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Effect of Network Topology and Node Centrality on Trading

Author

Listed:
  • Felipe Maciel Cardoso

    (emlyon business school)

  • Carlos Gracia-Lázaro
  • Frederic Moisan
  • Sanjeev Goyal
  • Angel Sánchez
  • Yamir Moreno

Abstract

Global supply networks in agriculture, manufacturing, and services are a defining feature of the modern world. The efficiency and the distribution of surpluses across different parts of these networks depend on the choices of intermediaries. This paper conducts price formation experiments with human subjects located in large complex networks to develop a better understanding of the principles governing behavior. Our first experimental finding is that prices are larger and that trade is significantly less efficient in small-world networks as compared to random networks. Our second experimental finding is that location within a network is not an important determinant of pricing. An examination of the price dynamics suggests that traders on cheapest—and hence active—paths raise prices while those off these paths lower them. We construct an agent-based model (ABM) that embodies this rule of thumb. Simulations of this ABM yield macroscopic patterns consistent with the experimental findings. Finally, we extrapolate the ABM on to significantly larger random and small-world networks and find that network topology remains a key determinant of pricing and efficiency.

Suggested Citation

  • Felipe Maciel Cardoso & Carlos Gracia-Lázaro & Frederic Moisan & Sanjeev Goyal & Angel Sánchez & Yamir Moreno, 2020. "Effect of Network Topology and Node Centrality on Trading," Post-Print hal-03188212, HAL.
  • Handle: RePEc:hal:journl:hal-03188212
    Note: View the original document on HAL open archive server: https://hal.archives-ouvertes.fr/hal-03188212
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    References listed on IDEAS

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