Communication networks in markets

Edoardo Gallo

Cambridge Working Papers in Economics from Faculty of Economics, University of Cambridge

Abstract: This paper proposes a dynamic model of bargaining to analyze decentralized markets where buyers and sellers obtain information about past deals through their social network. There is a unique equilibrium outcome which depends crucially on the peripheral (least connected) individuals in each group. The main testable predictions are that groups with high density and/or low variability in the number of connections across individuals allow their members to obtain a better deal. These predictions are tested in a lab experiment through 4 treatments that vary the network that groups of 6 subjects are assigned to. The results of the experiment lend support to the theoretical predictions: subjects converge to a high equilibrium demand if they are assigned to a network that is dense and/or has low variability in number of connections across members. An extension explores an alternative set-up in which buyers and sellers belong to the same social network: if the network is regular and the agents are homogeneous then the unique equilibrium division is 50-50

Keywords: network; communication; experiment; noncooperative bargaining; 50-50 division (search for similar items in EconPapers)
JEL-codes: C73 C78 C91 C92 D83 (search for similar items in EconPapers)
Date: 2014-08-26
New Economics Papers: this item is included in nep-cdm, nep-exp, nep-gth, nep-net and nep-soc
Note: eg320
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:cam:camdae:1431

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