Trading networks of price-taking buyers and sellers

Myeonghwan Cho

Journal of Economic Theory, 2021, vol. 196, issue C

Abstract: We consider a situation in which sellers and buyers trade divisible goods as price-takers in a network. We first characterize equilibrium market structures under which actual trading occurs through the links. Even when the sellers and buyers are connected in a network, several markets with different prices can appear in an equilibrium. The equilibrium market structure is essentially unique in the sense that each individual faces the same price and ends up with the same quantity traded in every equilibrium. We also show how the creation of additional links in the network affects the individual payoffs and the social welfare. A creation of a link can increase or decrease the payoffs of an individual seller or buyer, but it always weakly improves the social welfare.

Keywords: Trading network; Price-taker; Competitive equilibrium; Welfare effect (search for similar items in EconPapers)
JEL-codes: C72 C78 D20 L14 (search for similar items in EconPapers)
Date: 2021
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jetheo:v:196:y:2021:i:c:s0022053121001071

DOI: 10.1016/j.jet.2021.105290

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