Trading Networks with friction

2 September 2019
Alex Teytelboym

Econometrica, Vol. 87, No. 5, p. 1633-1661

DOI: https://doi.org/10.3982/ECTA14159

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.

 

Co-authors: TAMÁS FLEINER; RAVI JAGADEESAN; ZSUZSANNA JANKÓ

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