Efficiency in decentralized oligopolistic markets

The paper investigates how quantity competition operates in economies in which a network describes the set of feasible trades. A model is presented in which equilibrium dictates whether an individual buys, sells, or intermediates goods. The analysis first considers small economies, and provides suffi cient conditions for equilibrium existence, a characterization of prices and flows, and some negative results relating welfare to network structure. The second and central part of the analysis considers behavior in large markets, and presents necessary and suffi cient conditions on the network structure for equilibria to be approximately effi cient when the number of players at various locations of the economy is large. ∗I am indebted to Matt Jackson and to Ted Bergstrom for their valuable comments, and to Hugo Sonnenschein, Roger Myerson, Phil Reny and Balazs Szentes for their advice. I also would like to thank the seminar participants at Harvard/MIT, UChicago, UW Madison, UCSB, Caltech, BU, UBC, VTech, LSE, UCL, Cambridge, Essex, Royal Holloway, Cardiff, Pompeo Favra, Universitat Autonoma Barcelona, Bocconi, Bank of Italy, Maastricht. †London School of Economics, [email protected].