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Trading Networks With Frictions

Author

Listed:
  • Tamás Fleiner
  • Ravi Jagadeesan
  • Zsuzsanna Jankó
  • Alexander Teytelboym
Abstract
We show how frictions and continuous transfers jointly affect equilibria in a model of matching in trading networks. Our model incorporates distortionary frictions such as transaction taxes and commissions. When contracts are fully substitutable for firms, competitive equilibria exist and coincide with outcomes that satisfy a cooperative solution concept called trail stability. However, competitive equilibria are generally neither stable nor Pareto‐efficient.

Suggested Citation

  • Tamás Fleiner & Ravi Jagadeesan & Zsuzsanna Jankó & Alexander Teytelboym, 2019. "Trading Networks With Frictions," Econometrica, Econometric Society, vol. 87(5), pages 1633-1661, September.
    • Handle: RePEc:wly:emetrp:v:87:y:2019:i:5:p:1633-1661
    DOI: 10.3982/ECTA14159
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    References listed on IDEAS

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    Cited by:

    1. Zhou, Yu & Serizawa, Shigehiro, 2023. "Multi-object auction design beyond quasi-linearity: Leading examples," Games and Economic Behavior, Elsevier, vol. 140(C), pages 210-228.
    2. Scott Duke Kominers & Alexander Teytelboym & Vincent P Crawford, 2017. "An invitation to market design," Oxford Review of Economic Policy, Oxford University Press and Oxford Review of Economic Policy Limited, vol. 33(4), pages 541-571.
    3. Yu Zhou & Shigehiro Serizawa, 2020. "Serial Vickrey Mechanism," ISER Discussion Paper 1095, Institute of Social and Economic Research, Osaka University.
    4. Chao Huang, 2023. "Multilateral matching with scale economies," Papers 2310.19479, arXiv.org.
    5. Yokote, Koji, 2021. "Consistency of the doctor-optimal equilibrium price vector in job-matching markets," Journal of Economic Theory, Elsevier, vol. 197(C).
    6. Kominers, Scott Duke & Hatfield, John William & Nichifor, Alexandru & Ostrovsky, Michael & Westkamp, Alexander, 2021. "Chain stability in trading networks," Theoretical Economics, Econometric Society, vol. 16(1), January.
    7. Piotr Dworczak & Scott Duke Kominers & Mohammad Akbarpour, 2021. "Redistribution Through Markets," Econometrica, Econometric Society, vol. 89(4), pages 1665-1698, July.
    8. Klemperer, Paul & Baldwin, Elizabeth & Edhan, Omer & Jagadeesan, Ravi & Teytelboym, Alexander, 2020. "The Equilibrium Existence Duality: Equilibrium with Indivisibilities & Income Effects," CEPR Discussion Papers 14926, C.E.P.R. Discussion Papers.
    9. Schlegel, Jan Christoph, 2022. "The structure of equilibria in trading networks with frictions," Theoretical Economics, Econometric Society, vol. 17(2), May.
    10. Herings, P. Jean-Jacques & Zhou, Yu, 2021. "Equilibria in Matching Markets with Soft and Hard Liquidity Constraints," Research Memorandum 013, Maastricht University, Graduate School of Business and Economics (GSBE).
    11. Andersson, Tommy & Ehlers, Lars & Svensson, Lars-Gunnar, 2020. "Non-Manipulable House Exchange under (Minimum) Equilibrium Prices," Working Papers 2020:28, Lund University, Department of Economics, revised 04 Nov 2024.
    12. Fisher, James C.D., 2020. "Existence of stable allocations in matching markets with infinite contracts: A topological approach," Journal of Mathematical Economics, Elsevier, vol. 91(C), pages 136-140.
    13. Herings, P. Jean-Jacques, 2024. "Expectational equilibria in many-to-one matching models with contracts," Journal of Economic Theory, Elsevier, vol. 216(C).
    14. Hatfield, John William & Kominers, Scott Duke & Nichifor, Alexandru & Ostrovsky, Michael & Westkamp, Alexander, 2019. "Full substitutability," Theoretical Economics, Econometric Society, vol. 14(4), November.
    15. Tam'as Fleiner & Zsuzsanna Jank'o & Ildik'o Schlotter & Alexander Teytelboym, 2018. "Complexity of Stability in Trading Networks," Papers 1805.08758, arXiv.org, revised Feb 2019.
    16. Balbuzanov, Ivan & Kotowski, Maciej H., 2024. "The property rights theory of production networks," Theoretical Economics, Econometric Society, vol. 19(4), November.
    17. Agnes Cseh & Jannik Matuschke, 2018. "New and simple algorithms for stable flow problems," CERS-IE WORKING PAPERS 1817, Institute of Economics, Centre for Economic and Regional Studies.
    18. Alfred Galichon & Simon Weber, 2024. "Matching under Imperfectly Transferable Utility," Papers 2403.05222, arXiv.org, revised Oct 2024.
    19. Yu Zhou & Shigehiro Serizawa, 2021. "Multi-object Auction Design Beyond Quasi-linearity: Leading Examples," ISER Discussion Paper 1116, Institute of Social and Economic Research, Osaka University.

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    More about this item

    JEL classification:

    • C62 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Existence and Stability Conditions of Equilibrium
    • C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
    • D47 - Microeconomics - - Market Structure, Pricing, and Design - - - Market Design
    • D51 - Microeconomics - - General Equilibrium and Disequilibrium - - - Exchange and Production Economies
    • D52 - Microeconomics - - General Equilibrium and Disequilibrium - - - Incomplete Markets
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation

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