Sharing Market Access in Buyer–Seller Networks

Abstract: This paper presents a network formation game of buyers and sellers with market sharing. Prior to engaging in bargaining with buyers, sellers exchange access to buyers for negotiated payments to overcome search frictions. With homogeneous preferences, sharing increases market trade volume. Surprisingly, buyers benefit from sharing when sellers have stronger bargaining positions. With heterogeneous preferences, market sharing may decrease market trade volume. Also, when sellers have more bargaining power than buyers, trade volume weakly exceeds Walrasian level, thus causing overproduction by high-cost sellers. Buyers who value the good the least are squeezed out from the market as a result of sharing between sellers.