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Formation of buyer-seller trade networks in a quality-differentiated product market

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Abstract:

Abstract. 

We examine the formation of buyer-seller links when exchange can take place only if such a link exists. Sellers produce products of different qualities, and multiple sellers can form a sellers' association to pool their customers setting uniform prices. Buyers form trade links with individual sellers or sellers' associations. We show which buyer-seller links will form and find the set of links that are stable and show how these links influence prices. We also show that a trade network mismatch may occur where a high-quality good remains unsold even without an economy-wide excess supply of goods.

Keywords: D40; D51; D82

Document Type: Research Article

DOI: http://dx.doi.org/10.1111/j.1540-5982.2006.00378.x

Affiliations: 1: Department of Economics, Washington University 2: Department of Economics, Southern Illinois University

Publication date: August 1, 2006

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