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Formation of buyer‐seller trade networks in a quality‐differentiated product market

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  • Ping Wang
  • Alison Watts
Abstract
We examine the formation of buyer‐seller links when exchange can take place only if such a link exists. Sellers produce products of different qualities, and multiple sellers can form a sellers' association to pool their customers setting uniform prices. Buyers form trade links with individual sellers or sellers' associations. We show which buyer‐seller links will form and find the set of links that are stable and show how these links influence prices. We also show that a trade network mismatch may occur where a high‐quality good remains unsold even without an economy‐wide excess supply of goods. Les auteurs examinent le processus de formation de liens acheteurs‐vendeurs quand l'échange ne peut s'effectuer que si de tels liens existent. Les vendeurs produisent des biens de différentes qualités et un nombre de vendeurs peuvent former une association pour mettre en commun leurs clients et imposer des prix uniformes. Les acheteurs forment des liens commerciaux avec des vendeurs individuels ou avec leurs associations. On montre quels liens acheteurs‐vendeurs vont se former, quels liens vont s'avérer stables, et comment ces liens influencent le niveau des prix. On montre aussi qu'un réseau de commerce peut être mal adapté et un bien de haute qualité resté sans preneur même s'il n'y a pas offre excédentaire de biens dans toute l'économie.

Suggested Citation

  • Ping Wang & Alison Watts, 2006. "Formation of buyer‐seller trade networks in a quality‐differentiated product market," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 39(3), pages 971-1004, August.
    • Handle: RePEc:wly:canjec:v:39:y:2006:i:3:p:971-1004
    DOI: 10.1111/j.1540-5982.2006.00378.x
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    Cited by:

    1. Zakaria Babutsidze, 2012. "Consumer Learning through Interaction: Effects on Aggregate Outcomes," Chapters, in: Guido Buenstorf (ed.), Evolution, Organization and Economic Behavior, chapter 4, Edward Elgar Publishing.
    2. Jean-François Caulier & Ana Mauleon & Vincent Vannetelbosch, 2013. "Contractually stable networks," International Journal of Game Theory, Springer;Game Theory Society, vol. 42(2), pages 483-499, May.
    3. BEDAYO, Mikel & MAULEON, Ana & VANNETELBOSCH, Vincent, 2012. "Bargaining and delay in trading networks," LIDAM Discussion Papers CORE 2012046, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    4. Jean-François Caulier & Ana Mauleon & Jose Sempere-Monerris & Vincent Vannetelbosch, 2013. "Stable and efficient coalitional networks," Review of Economic Design, Springer;Society for Economic Design, vol. 17(4), pages 249-271, December.
    5. Bloch, Francis & Genicot, Garance & Ray, Debraj, 2008. "Informal insurance in social networks," Journal of Economic Theory, Elsevier, vol. 143(1), pages 36-58, November.
    6. Messan Agbaglah, 2017. "Overlapping coalitions, bargaining and networks," Theory and Decision, Springer, vol. 82(3), pages 435-459, March.
    7. Alison Watts, 2016. "Auctions Versus Private Negotiations in Buyer-Seller Networks," Games, MDPI, vol. 7(3), pages 1-14, August.
    8. OKUBO Toshihiro & ONO Yukako & SAITO Yukiko, 2014. "Roles of Wholesalers in Transaction Networks," Discussion papers 14059, Research Institute of Economy, Trade and Industry (RIETI).
    9. Dutta, Bhaskar & Ghosal, Sayantan & Ray, Debraj, 2005. "Farsighted network formation," Journal of Economic Theory, Elsevier, vol. 122(2), pages 143-164, June.
    10. Bedayo, Mikel & Mauleon, Ana & Vannetelbosch, Vincent, 2016. "Bargaining in endogenous trading networks," Mathematical Social Sciences, Elsevier, vol. 80(C), pages 70-82.
    11. Matthew O. Jackson, 2003. "A Survey of Models of Network Formation: Stability and Efficiency," Game Theory and Information 0303011, University Library of Munich, Germany.
    12. Vignes, Annick & Etienne, Jean-Michel, 2011. "Price formation on the Marseille fish market: Evidence from a network analysis," Journal of Economic Behavior & Organization, Elsevier, vol. 80(1), pages 50-67.
    13. Anirban Sengupta, 2011. "Network Strategy and Access to Business Finance," Journal of Entrepreneurship and Innovation in Emerging Economies, Entrepreneurship Development Institute of India, vol. 20(1), pages 103-126, March.
    14. Hemant Patil, 2011. "Buyer–seller networks with demand shocks and intermediation," Review of Economic Design, Springer;Society for Economic Design, vol. 15(2), pages 121-145, June.
    15. Mauleon, Ana & Sempere-Monerris, Jose J. & Vannetelbosch, Vincent J., 2011. "Networks of manufacturers and retailers," Journal of Economic Behavior & Organization, Elsevier, vol. 77(3), pages 351-367, March.

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    JEL classification:

    • D40 - Microeconomics - - Market Structure, Pricing, and Design - - - General
    • D51 - Microeconomics - - General Equilibrium and Disequilibrium - - - Exchange and Production Economies
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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