American Economic Review: Vol. 91 No. 3 (June 2001)


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A Theory of Buyer-Seller Networks

Article Citation

Kranton, Rachel E., and Deborah F. Minehart. 2001. "A Theory of Buyer-Seller Networks." American Economic Review, 91(3): 485-508.

DOI: 10.1257/aer.91.3.485


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 E. (U MD)
Minehart, Deborah F. (Boston U)

JEL Classifications

D40: Market Structure and Pricing: General
L10: Market Structure, Firm Strategy, and Market Performance: General

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