Stability and Competitive Equilibrium in Trading Networks

John William  Hatfield; Scott Duke Kominers; Alexandru   Nichifor; Michael  Ostrovsky; Alexander  Westkamp

Article | Journal of Political Economy

Stability and Competitive Equilibrium in Trading Networks

by John William Hatfield, Scott Duke Kominers, Alexandru Nichifor, Michael Ostrovsky and Alexander Westkamp

Abstract

We introduce a model in which agents in a network can trade via bilateral contracts. We find that when continuous transfers are allowed and utilities are quasi-linear, the full substitutability of preferences is sufficient to guarantee the existence of stable outcomes for any underlying network structure. Furthermore, the set of stable outcomes is essentially equivalent to the set of competitive equilibria, and all stable outcomes are in the core and are efficient. By contrast, for any domain of preferences strictly larger than that of full substitutability, the existence of stable outcomes and competitive equilibria cannot be guaranteed.

Keywords: Balance and Stability; Markets;

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Hatfield, John William, Scott Duke Kominers, Alexandru Nichifor, Michael Ostrovsky, and Alexander Westkamp. "Stability and Competitive Equilibrium in Trading Networks." Journal of Political Economy 121, no. 5 (October 2013): 966–1001.

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Stability and Competitive Equilibrium in Trading Networks

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