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Trading in Networks: A Normal Form Game Experiment

Douglas M. Gale and Shachar Kariv
American Economic Journal: Microeconomics
Vol. 1, No. 2 (August 2009), pp. 114-132
Stable URL: http://www.jstor.org/stable/25760364
Page Count: 19
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Trading in Networks: A Normal Form Game Experiment
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Abstract

This paper reports an experimental study of trading networks. Networks are incomplete in the sense that each trader can only exchange assets with a limited number of other traders. The greater the incompleteness of the network, the more intermediation is required to transfer the assets between initial and final owners. The uncertainty of trade in networks constitutes a potentially important market friction. Nevertheless, we find the pricing behavior observed in the laboratory converges to competitive equilibrium behavior in a variety of treatments. However, the rate of convergence varies depending on the network, pricing rule, and payoff function.

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