EconPapers    
Economics at your fingertips  
 

Volume of Trade and Dynamic Network Formation in Two-Sided Economies

Roland Pongou () and Roberto Serrano ()

No 1602E, Working Papers from University of Ottawa, Department of Economics

Abstract: We study the long-run stability of trade networks in a two-sided economy. Each agent desires relationships with the other side, but having multiple partners is costly. This cost-benefit tradeoff results in each agent having a single-peaked utility over the number of partners-the volume of trade-, the peak being greater for agents on one side than those on the other. We propose a stochastic matching process in which self-interested agents form and sever links over time. Links can be added or deleted, sometimes simultaneously by a single agent. While the unperturbed process yields each pairwise stable network as an absorbing state, stochastic stability in two perturbed processes provides a significant refinement, leading respectively to egalitarian and anti-egalitarian pairwise stable networks. These distinct network configurations have implications for the concentration on each side of the market of a random information shock, which may affect structurally identical economies differently. The analysis captures stylized facts, related to herd behavior, market fragmentation, concentration and contagion asymmetry, in several two-sided economies. It also rationalizes long-run population imbalance between the two sides of certain buyer-seller markets.

Keywords: Two-sided economies; trade networks; pairwise stability; stochastic stability; herd behavior; fragmentation; concentration; contagion asymmetry (search for similar items in EconPapers)
JEL-codes: C73 D01 D03 D85 F16 J00 (search for similar items in EconPapers)
Pages: 40 pages
Date: 2016
New Economics Papers: this item is included in nep-gth, nep-mic and nep-net
References: Add references at CitEc
Citations: View citations in EconPapers (13) Track citations by RSS feed

Downloads: (external link)
http://sciencessociales.uottawa.ca/economics/sites ... cs/files/1602e_0.pdf (application/pdf)

Related works:
Journal Article: Volume of trade and dynamic network formation in two-sided economies (2016) Downloads
Working Paper: Volume of Trade and Dynamic Network Formation in Two-Sided Economies (2013) Downloads
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ott:wpaper:1602e

Access Statistics for this paper

More papers in Working Papers from University of Ottawa, Department of Economics Contact information at EDIRC.
Bibliographic data for series maintained by Diane Ritchot ().

 
Page updated 2023-02-04
Handle: RePEc:ott:wpaper:1602e