Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/171954 
Year of Publication: 
2016
Series/Report no.: 
Bank of Canada Staff Working Paper No. 2016-63
Publisher: 
Bank of Canada, Ottawa
Abstract: 
This paper presents a model of strategic buyer-seller networks with information exchange between sellers. Prior to engaging in bargaining with buyers, sellers can share access to buyers for a negotiated transfer. We study how this information exchange affects overall market prices, volumes and welfare, given different initial market conditions and information sharing rules. In markets with homogeneous traders, sharing always increases total trade volume. The market reaches Walrasian trade volume when there are more buyers than sellers or when sellers have more bargaining power. In most cases, market surplus is completely reallocated to sellers. In the markets with heterogeneous traders, sharing may either increase or decrease total trade volume. When sellers have more bargaining power than buyers, information exchange leads to trade above the Walrasian level, thus leaving inefficiency only due to overproduction of high-cost sellers. As a result of information sharing, the buyers who value goods the least will be squeezed out from the market independent of their location and bargaining power. We also show that if, together with information exchange, sellers assign property rights on the information, exchange leads to lower volume and market prices than exchange without property rights.
Subjects: 
Economic models
Firm dynamics
Market structure and pricing
JEL: 
D4
D43
D8
D21
D85
C71
C78
L1
L13
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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