Inefficiencies in Networked Markets
- Creators
- Elliott, Matthew
Abstract
In many markets, relationship specific investments are necessary for trade. These formed relationships constitute a networked market in which not all buyers can trade with all sellers. We show that networked markets can be decomposed to identify how alternative trading opportunities affect who trades with whom and at what price. This uncovers agents' incentives to invest in relationships. Investment inefficiencies can eliminate all the gains from trade, but for reasons that differ depending on how investments are made. Three applications are considered in detail: high-skill labor markets, merger markets when industries are consolidating, and the international market for natural gas.
Additional Information
© 2015 American Economic Association. I am grateful to Matt Jackson and Muriel Niederle for extensive discussions, advice and guidance and to Rachel Kranton for very helpful comments on an earlier draft. I also thank anonymous referees, Manuel Amador, Attila Ambrus, Doug Bernheim, Francis Bloch, Itay Fainmesser, Guillaume Fréchette, Sanjeev Goyal, Bob Hall, Fuhito Kojima, Pete Kyle, Jon Levin, Paul Milgrom, David Myatt, Michael Ostrovsky, Al Roth, Ilya Segal, Jan-Peter Siedlarek, Andy Skrzypacz, and Fernando Vega-Redondo, as well as numerous seminar and conference participants, for valuable feedback. I gratefully acknowledge financial support from the Sonja and William Davidow Fellowship administered through the Stanford Institute for Economic Policy Research.Attached Files
Published - mic.20130098.pdf
Supplemental Material - 2013-0098_app.pdf
Supplemental Material - 2013-0098_ds.zip
Files
Additional details
- Eprint ID
- 62446
- Resolver ID
- CaltechAUTHORS:20151130-111457739
- Sonja and William Davidow Fellowship
- Created
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2015-12-03Created from EPrint's datestamp field
- Updated
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2021-11-10Created from EPrint's last_modified field