A theory of buyer-seller networks

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2001-06-01

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Abstract

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.

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Kranton

Rachel Kranton

James B. Duke Distinguished Professor of Economics

Rachel Kranton studies how institutions and the social setting affect economic outcomes. She develops theories of networks and has introduced identity into economic thinking. Her research contributes to many fields including microeconomics, economic development, and industrial organization.

In Identity Economics, Rachel Kranton and collaborator George Akerlof, introduce a general framework to study social norms and identity in economics.

In the economics of networks, Rachel Kranton develops formal models of strategic interaction in different economic settings. Her work draws on empirical findings and integrates new mathematical tools to uncover how network structures influence economic outcomes.

Rachel Kranton has a long-standing interest in development economics and institutions. She focuses on the costs and benefits of networks and informal exchange, which is economic activity mediated by social relationships rather than markets.


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