Research Article
Trading networks with bilateral contracts
@INPROCEEDINGS{10.4108/eai.8-8-2015.2260329, author={Tamas Fleiner and Zsuzsanna Janko and Akihisa Tamura and Alexander Teytelboym}, title={Trading networks with bilateral contracts}, proceedings={The Third Conference on Auctions, Market Mechanisms and Their Applications}, publisher={ACM}, proceedings_a={AMMA}, year={2015}, month={8}, keywords={matching markets contracts networks supply chains stability trail stability competitive equilibrium}, doi={10.4108/eai.8-8-2015.2260329} }- Tamas Fleiner
Zsuzsanna Janko
Akihisa Tamura
Alexander Teytelboym
Year: 2015
Trading networks with bilateral contracts
AMMA
ICST
DOI: 10.4108/eai.8-8-2015.2260329
Abstract
We study production networks in which firms match and sign bilateral contracts. Firms can buy from and sell to one another directly or via intermediaries. It is well-known that in this case group-stable outcomes might not exist. We show that the problem of determining whether an allocation is group-stable is NP-hard. We define a new stability concept, called trail stability, and show that any network of bilateral contracts has a trail-stable outcome whenever agents' preferences satisfy full substitutability. Trail-stable outcomes rule out consecutive and consistent pairwise blocks that form trails of contracts. Trail stability is a natural extension of chain stability and is a stronger solution concept in general contract networks. Trail-stable outcomes may not be immune to group deviations or efficient. In fact, we show that outcomes satisfying an even more demanding stability property -- full trail stability -- always exist. Fully trail-stable outcomes also rule out trail blocks, but an intermediary is not required to choose all contracts in the trail -- only local upstream-downstream pairs. We pin down conditions under which terminal contracts in trail-stable and fully trail-stable outcomes have a lattice structure. We describe the relationships between all stability concepts. When contracts specify trades and prices, we also show that trail-stable competitive equilibrium outcomes exist in networked markets even when agents' utility functions are not quasilinear.
