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Faculty of Economics

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Gallo, E.

Communication Networks in Markets

European Economic Review

Vol. 129 no. 103545 (2020)

Abstract: This paper proposes and tests experimentally a dynamic model of bargaining to analyze decentralized markets where buyers and sellers obtain information about past deals through their social network. There is a unique equilibrium in which every individual obtains the same outcome independent of their network position, and this outcome depends on the peripheral (least connected) individuals in the network. The main testable predictions are that networks with high density and/or low variability in the number of connections across individuals allow their members to obtain a better deal. These predictions are tested in a lab experiment through 4 treatments that vary the network that subjects are assigned to. The results of the experiment lend support to the theoretical predictions. Subjects converge to an outcome that is independent of their network position, and they fare better if they are assigned to a network that is dense and/or has low variability in number of connections across members.

Keywords: experiment, network, communication, noncooperative bargaining, 50-50 division

JEL Codes: C91, C92, D83, C73

Author links: Edoardo Gallo  

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Papers and Publications

Recent Publications

Bhattacharya, D. and Shvets, J. Inferring Trade-Offs in University Admissions: Evidence from Cambridge Journal of Political Economy, accepted [2024]

Bhattacharya, D., Dupas, P. and Kanaya, S. Demand and Welfare Analysis in Discrete Choice Models with Social Interactions Review of Economic Studies [2023]

Gallo, E. and Yan, C. Efficiency and Equilibrium in Network Games: An Experiment Review of Economics and Statistics [2023]

Bhattacharya, D. Nonparametric Approaches to Empirical Welfare Analysis Journal of Economic Literature, forthcoming [2023]