When Do Markets Work? Multiplex Networks and Efficiency

Chengqing Li, Yves Zenou and Junjie Zhou

No 21517, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: We study an Arrow-Debreu economy with externalities generated by multiplex networks. Market equilibrium prices reflect both the preferences and scarcity of goods, consumers' network centralities arising from goods' externalities, as well as linkages across goods (layers) through the budget constraint. Despite the presence of externalities, competitive markets can still be efficient: the First and Second Welfare Theorems hold if either all networks are regular or all layers share the same network structure. When markets allocate goods inefficiently, a Lindahl equilibrium—implemented through personalized prices—can restore efficiency, but may leave some consumers worse off.

Keywords: Social Networks; Competitive equilibrium; Externalities; Welfare (search for similar items in EconPapers)
JEL-codes: C63 D50 D62 D85 Z13 (search for similar items in EconPapers)
Date: 2026-05
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