Trading in Networks: Theory and Experiments

Abstract:

We propose a model of posted prices in networks. The model maps traditional concepts of market power, competition and double marginalization into networks, allowing for the study of pricing in complex networks of intermediation such as supply chains, transportation and communication networks and decentralized trading. We provide a complete characterization of equilibrium prices for arbitrary networks. Our experiments complement our theoretical work and point to node criticality as an organizing principle for understanding pricing, efficiency and the division of surplus in networked markets.