Incentive compatible and stable trade mechanisms on networks

Olivier Bochet, Rahmi İlkılıç

    Research output: Contribution to journalArticle

    Abstract

    We study a network of buyers and sellers where each seller owns an indivisible object and has no incentive to keep it, while each buyer has a downward sloping demand curve which is private information. Only the connected buyer-seller pairs can engage in trade. We search for trade mechanisms that are efficient, strategy-proof, bilateral trade stable and individually rational. In general, there does not exist a trade mechanism simultaneously satisfying these properties. The tension between strategy-proofness and bilateral trade stability is generated by the intersection between sets of competitors of a buyer at different sellers. Such intersections often allow the buyer to manipulate (via demand reductions) the prices paid in the network. The observed tension can be resolved if and only if the underlying network is cycle-free. In such a case, there is a unique trade mechanism which satisfies our four properties, a generalized Vickrey auction.

    Original languageEnglish (US)
    Pages (from-to)218-233
    Number of pages16
    JournalJournal of Economic Theory
    Volume169
    DOIs
    StatePublished - May 1 2017

    Fingerprint

    Incentive compatible
    Buyers
    Seller
    Bilateral trade
    Private information
    Competitors
    Indivisible objects
    Vickrey auction
    Demand curve
    Strategy-proof
    Strategy-proofness
    Incentives

    Keywords

    • Bilateral trade stability
    • Cycles
    • Demand reductions
    • Networks
    • Strategy-proofness
    • Trade mechanisms

    ASJC Scopus subject areas

    • Economics and Econometrics

    Cite this

    Incentive compatible and stable trade mechanisms on networks. / Bochet, Olivier; İlkılıç, Rahmi.

    In: Journal of Economic Theory, Vol. 169, 01.05.2017, p. 218-233.

    Research output: Contribution to journalArticle

    Bochet, Olivier ; İlkılıç, Rahmi. / Incentive compatible and stable trade mechanisms on networks. In: Journal of Economic Theory. 2017 ; Vol. 169. pp. 218-233.
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