Deborah F. Minehart

Networks versus Vertical Integration

We construct a theory to compare vertically integrated firms to networks of manufacturers and suppliers. Vertically integrated firms make their own specialized inputs. In networks, manufacturers procure specialized inputs from suppliers that, in turn, sell to several manufacturers. The analysis shows that networks can yield greater social welfare when manufacturers experience large idiosyncratic demand shocks. Individual firms may also have the incentive to form networks, despite the lack of long-term contracts. The analysis is supported by existing evidence and provides predictions as to the shape of different industries.

Competition for Goods in Buyer-Seller Networks

This paper studies competition in a network and how a network structure determines agents’ individual payoffs. It constructs a general model of competition that can serve as a reduced form for specific models. The paper shows how agents’ outside options, and hence their shares of surplus, derive from “opportunity paths” connecting them to direct and indirect alternative exchanges. Analyzing these paths, results show how third parties’ links affect different agents’ bargaining power. Even distant links may have large effects on agents’ earnings. These payoff results, and the identification of the paths themselves, should prove useful to further analysis of network structure.

A note on the finiteness of the set of equilibria in an exchange economy with constrained endowments

Debreu (1970) proved that for smooth finite exchange economies, the set of endowment assignments which result in a finite number of price equilibria is large in the sense that it has null closed complement. We show that if the individual endowment space of each agent does not include all the commodities, then this conclusion need not hold. In particular, we consider the case where each agents endowment space includes only one good. We construct a class of examples in which every economy in an open subset of the constrained endowment space gives rise to a continuum of equilibria.