Trading Networks with frictions

Sep 2019

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


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.

Department AuthorS

Alex Teytelboym

Tamás Fleiner

Ravi Jagadeesan

Zsuzsanna Jankó

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