Liquidity risk in sequential trading networks
Maciej H. Kotowski and
Christian Leister ()
Games and Economic Behavior, 2018, vol. 109, issue C, 565-581
This paper studies a model of intermediated exchange with liquidity-constrained traders. Intermediaries are embedded in a trading network and their financial capacities are private information. We characterize our model's monotone, pure-strategy equilibrium. Agents earn positive intermediation rents in equilibrium. An experimental investigation supports the model's baseline predictions concerning agents' strategies, price dynamics, and the division of surplus. While private financial constraints inject uncertainty into the trading environment, our experiment suggests they are also a behavioral speed-bump, preventing traders from experiencing excessive losses due to overbidding.
Keywords: Experiment; Economic networks; Intermediation; Liquidity; Auctions; Budget constraints (search for similar items in EconPapers)
JEL-codes: L14 C91 D85 D44 G10 (search for similar items in EconPapers)
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Working Paper: Liquidity Risk in Sequential Trading Networks (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:gamebe:v:109:y:2018:i:c:p:565-581
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