Inefficiencies in Networked Markets
Accepted version
Peer-reviewed
Repository URI
Repository DOI
Change log
Authors
Elliott, Matthew https://orcid.org/0000-0003-0243-5414
Abstract
jats:p 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. (JEL C78, D85, D86) </jats:p>
Description
Keywords
38 Economics, 3502 Banking, Finance and Investment, 3801 Applied Economics, 35 Commerce, Management, Tourism and Services
Journal Title
AMERICAN ECONOMIC JOURNAL-MICROECONOMICS
Conference Name
Journal ISSN
1945-7669
1945-7685
1945-7685
Volume Title
7
Publisher
American Economic Association