On the Efficiency of Large Resale Networks

Ludovic Renou, Daniele Condorelli and Andrea Galeotti

No 16800, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: Many goods are allocated via resale networks, reaching their final buyer through a sequence of exchanges. We study a model where a single good is traded by a potentially infinite number of traders who have private valuations for the good and are connected in a random network that determines resale possibilities. Whoever holds the good has bargaining power. We show that large resale networks allocate efficiently in the no-discounting limit, even if resale opportunities are locally-limited. When the network is a stationary random tree, the limiting equilibrium is inefficient if and only if the network is a chain of monopolists.

Date: 2021-12
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