Chain Stability in Trading Networks
20 Pages Posted: 30 May 2018
Date Written: April 1, 2015
We show that in general trading networks with bilateral contracts, a suitably adapted chain stability concept (Ostrovsky, 2008) is equivalent to stability (Hatfield and Kominers, 2012; Hatfield et al., 2013) if all agents’ preferences are fully substitutable and satisfy the Laws of Aggregate Supply and Demand. Furthermore, in the special case of trading networks with transferable utility, an outcome is consistent with competitive equilibrium if and only if it is not blocked by any chain of contracts.
Keywords: Matching, Stability, Networks, Substitutability
JEL Classification: C62, C78, D47
Suggested Citation: Suggested Citation