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Competitive Equilibrium and Trading Networks: A Network Flow Approach

Listed author(s):
  • Candogan, Ozan

    (University of Chicago)

  • Epitropou, Markos

    (University of Pennsylvania)

  • Vohra, Rakesh V.

    (University of Pennsylvania)

Registered author(s):

    Under full substitutability of preferences, it has been shown that a competitive equilibrium exists in trading networks,and is equivalent (after a restriction to equilibrium trades) to (chain) stable outcomes. In this paper, we formulate the problem of finding an efficient outcome as a generalized submodular flow problem on a suitable network. Equivalence with seemingly weaker notions of stability follows directly from the optimality conditions, in particular the absence of improvement cycles in the flow problem. Our formulation yields strongly polynomial algorithms for finding competitive equilibria in trading networks, and testing (chain) stability.

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    File URL: http://www.ihs.ac.at/publications/eco/es-323.pdf
    File Function: First version, 2016
    Download Restriction: no

    Paper provided by Institute for Advanced Studies in its series Economics Series with number 323.

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    Length: n.s.
    Date of creation: Aug 2016
    Handle: RePEc:ihs:ihsesp:323
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    1. John William Hatfield & Scott Duke Kominers & Alexandru Nichifor & Michael Ostrovsky & Alexander Westkamp, 2013. "Stability and Competitive Equilibrium in Trading Networks," Journal of Political Economy, University of Chicago Press, vol. 121(5), pages 966-1005.
    2. Gul, Faruk & Stacchetti, Ennio, 1999. "Walrasian Equilibrium with Gross Substitutes," Journal of Economic Theory, Elsevier, vol. 87(1), pages 95-124, July.
    3. Ning Sun & Zaifu Yang, 2006. "Equilibria and Indivisibilities: Gross Substitutes and Complements," Econometrica, Econometric Society, vol. 74(5), pages 1385-1402, 09.
    4. Michael Ostrovsky, 2008. "Stability in Supply Chain Networks," American Economic Review, American Economic Association, vol. 98(3), pages 897-923, June.
    5. Danilov, Vladimir & Koshevoy, Gleb & Murota, Kazuo, 2001. "Discrete convexity and equilibria in economies with indivisible goods and money," Mathematical Social Sciences, Elsevier, vol. 41(3), pages 251-273, May.
    6. Kelso, Alexander S, Jr & Crawford, Vincent P, 1982. "Job Matching, Coalition Formation, and Gross Substitutes," Econometrica, Econometric Society, vol. 50(6), pages 1483-1504, November.
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