Networks and Markets. The dynamic impacts of information, matching and transaction costs on trade

Yuki Kumagai (lexyk1@nottingham.ac.uk)
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Yuki Kumagai: School of Economics, University of Nottingham

No 2010-07, Discussion Papers from The Centre for Decision Research and Experimental Economics, School of Economics, University of Nottingham

Abstract: The purpose of this paper is to explore strategic incentives to use trade networks rather than markets and shed light on the dynamic relation between the two distinct trading systems: a formal system of markets and a decentralised system of networks. We investigate the issues in the infinitely repeated multi-player prisoner's dilemma game with random matching. The existing literature emphasises the importance of information transmission in sustaining long-run cooperation in repeated personal transactions under perfect observability. By contrast, we show that a folk theorem may hold if we change the way traders are matched, without introducing any information sharing. We also examine different stages of the evolution of trading system. The study states conditions under which agents prefer to trade on networks rather than in markets.

Keywords: Repeated trade; Moral hazard; Matching; Transaction costs; Networks; Institutions (search for similar items in EconPapers)
JEL-codes: C73 D02 F10 (search for similar items in EconPapers)
Date: 2010-05
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Persistent link: https://EconPapers.repec.org/RePEc:not:notcdx:2010-07

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