Abstract:
This paper introduces a new model of exchange: networks, rather thar\ markets, of
buyers and sellers, it begins with the empirically motivated premise that a buyer and
seller must have a relationship, a "link." to e.xchange 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
whv agents may form networks. In a model that captures characteri.stics 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.
