Hierarchical Trade

41 Pages Posted: 5 Apr 2010

See all articles by Hans Gersbach

Hans Gersbach

ETH Zurich - CER-ETH -Center of Economic Research; IZA Institute of Labor Economics; CESifo (Center for Economic Studies and Ifo Institute); Centre for Economic Policy Research (CEPR)

Hans H. Haller

Virginia Polytechnic Institute & State University - Department of Economics

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Date Written: March 2010

Abstract

We study the allocation of commodities through a two-stage hierarchy of competitive markets. Groups or countries trade at global prices while individuals within a group trade at local prices. We identify the free trade and the autarky equilibrium as polar cases. We show that no other two-stage market equilibria exist if the commodity space is two-dimensional. An example demonstrates that other, so-called intermediate equilibria exist for three dimensional commodity spaces. We give two existence proofs for intermediate equilibria in higher dimensions. Each proof provides an explicit construction of special classes of intermediate equilibria. Finally, we consider the consequences for welfare and trade flows when some countries control the agency that organizes trade at the global level.

Keywords: control of trading platforms, Hierarchical trade, intermediate equilibria

JEL Classification: D43, D50, F10

Suggested Citation

Gersbach, Hans and Haller, Hans H., Hierarchical Trade (March 2010). CEPR Discussion Paper No. DP7764, Available at SSRN: https://ssrn.com/abstract=1583262

Hans Gersbach (Contact Author)

ETH Zurich - CER-ETH -Center of Economic Research ( email )

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CESifo (Center for Economic Studies and Ifo Institute)

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Hans H. Haller

Virginia Polytechnic Institute & State University - Department of Economics ( email )

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