Book Description
In many markets not all buyers can trade with all sellers. These markets can be represented as a network where the buyers and sellers are the nodes and weighted edges represent potential gains from trade between buyer-seller pairs. In these networked markets the structure of the network will affect who trades with whom and the terms of these trades. In particular, agents' alternative trading opportunities might provide outside options for them. In Chapter 2 I identify a parsimonious mapping from the network structure into market outcomes that captures these intuitions and is stable insofar as no buyer-seller pair could do better by instead trading with each other. In many instances networked markets are formed endogenously through investments that enable trade. In the remainder of Chapter 2 I explore such investments when they are directed. For example, two countries might build a pipeline to enable them to trade natural gas. In Chapter 3 I consider undirected investments in search, where the set of the possible trading opportunities that are discovered, and can subsequently be utilized, depends on the search efforts of the agents. For example, workers and firms might exert effort searching for each other in the labor market. This dissertation explores the nature and size of inefficiencies in these trade enabling investments.
