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A Theory of Buyer-Seller Networks

2001; American Economic Association; Volume: 91; Issue: 3 Linguagem: Inglês

10.1257/aer.91.3.485

1944-7981

Rachel Kranton, Deborah Minehart,

Economic theories and models

This paper introduces a new model of exchange: networks, rather than markets, of buyers and sellers. It begins with the empirically motivated premise that a buyer and seller must have a relationship, a “link,” to exchange goods. Networks—buyers, sellers, and the pattern of links connecting them—are common exchange environments. This paper develops a methodology to study network structures and explains why agents may form networks. In a model that captures characteristics of a variety of industries, the paper shows that buyers and sellers, acting strategically in their own self-interests, can form the network structures that maximize overall welfare. (JEL D00, L00)