Community Structure and Market Outcomes: A Repeated Games in Networks Approach

Abstract

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in EconStor may AbstractConsider a large market with asymmetric information, in which sellers choose whether to cooperate or deviate and 'cheat' their buyers, and buyers decide whether to re-purchase from di¤erent sellers. We model active trade relationships as links in a buyer-seller network and suggest a framework for studying repeated games in such networks. In our framework, buyers and sellers have rich yet incomplete knowledge of the network structure; allowing us to derive meaningful conditions that determine whether a network is consistent with trade and cooperation between every buyer and seller that are connected.We show that three network features reduce the minimal discount factor necessary for sustaining cooperation: moderate competition, sparseness, and segregation. We …nd that the incentive constraints rule out networks that maximize the volume of trade and that the constrained trade maximizing networks are in between 'old world' segregated and sparse networks, and a 'global market'. (JEL: A14, C73, D82, D85, L14)

Networks, Frictions, and Price Dispersion

“…8 Fainmesser (2012) analyzes repeated games in networks. Galeotti (2010) investigates the role of communication on consumer's search and firms' pricing behavior in networked markets.…”

Auctions versus Private Negotiations in Buyer-Seller Networks

“…To see this consider the following example. Let m=3, n=4, and g=11, 13,23,22,32,34. Let v j = v j,4 for all j.…”

“…Buyer 2 will accept this price if doing so makes him better off than he is from participating in the auction over g − 2. If v 2 = 10, then buyer 2 expects to pay price 22 . Note that since the probability of buyer 2 accepting is equal to 1 2 for all 3.5172 ≤ p 22 ≤ 5.25, seller 2's expected payoff will be maximized at the largest price in this range.…”

Exclusive Intermediation

“…McBride (2006), Jackson and Yariv (2007), Galeotti et al (2010), Fainmesser and Goldberg (2012), Fainmesser (2012), and Fainmesser (2013 assume that each individual observes the network structure up to a constant geodesic distance from her in the network. An individual's belief on parts of the networks that are farther away from her may be grounded in a random process that all individuals believe to have generated the network (e.g.…”

“…An individual's belief on parts of the networks that are farther away from her may be grounded in a random process that all individuals believe to have generated the network (e.g. Jackson and Yariv 2007, Fainmesser and Goldberg 2012, Fainmesser 2012, Fainmesser 2013, and implicitly also Galeotti et al 2010 Goyal (2007) and Jackson (2008) for extensive surveys of the literature on social and economics networks, and Gale and Kariv (2007), Gofman (2011), Condorelli andGaleotti (2011), andNava (2010) for work analyzing the efficiency of intermediated trade in exogenously determined networks. EXCLUSIVE INTERMEDIATION 7 any point in time.…”