A Theory of Buyer-Seller Networks

Rachel Kranton and Deborah F. Minehart

American Economic Review, 2001, vol. 91, issue 3, 485-508

Abstract: This paper introduces a new model of exchange: networks, rather than markets, of buyers and sellers. It begins with the empirically motivated premise that a buyer and seller must have a relationship, a "link," to exchange goods. Networks--buyers, sellers, and the pattern of links connecting them--are common exchange environments. This paper develops a methodology to study network structures and explains why agents may form networks. In a model that captures characteristics of a variety of industries, the paper shows that buyers and sellers, acting strategically in their own self-interests, can form the network structures that maximize overall welfare.

JEL-codes: D40 L10 (search for similar items in EconPapers)
Date: 2001
Note: DOI: 10.1257/aer.91.3.485
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Citations: View citations in EconPapers (244)

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