Bilateral and Community Enforcement in a Networked Market with Simple Strategies

Itay Fainmesser () and David A. Goldberg
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David A. Goldberg: https://sites.google.com/a/brown.edu/itay-fainmesser/home

No 2011-2, Working Papers from Brown University, Department of Economics

Abstract: We present a model of repeated games in large buyer-seller networks in the presence of reputation networks via which buyers share information about past transactions. The model allows us to characterize cooperation networks - networks in which each seller cooperates (by providing high quality goods) with every buyer that is connected to her. To this end, we provide conditions under which: [1] the incentives of a seller s to cooperate depend only on her beliefs with respect to her local neighborhood - a subnetwork that includes seller s and is of a size that is independent of the size of the entire network; and [2] the incentives of a seller s to cooperate can be calculated as if the network was a random tree with seller s at its root. Our characterization sheds light on the welfare costs of relying only on repeated interactions for sustaining cooperation, and on how to mitigate such costs.

Keywords: Networks; moral hazard; graph theory; repeated games (search for similar items in EconPapers)
Date: 2011
New Economics Papers: this item is included in nep-cta, nep-gth, nep-net and nep-soc
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Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:bro:econwp:2011-2

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