Hierarchically structured economies. Models with bilateral exchange institutions (Q4366809)

Consider a monopolist setting a price for a commodity which is sold to an intermediary trader who then sets a price for the consumers; this is an example of an hierarchy with the monopolist at the top and the consumers at the bottom; the monopolist is said to dominate the trader who in turn dominates the consumers. The solution or the trades which are made would be determined by backward induction. The book under review considers such situations and provides a systematic analysis of possible equilibria. To be more precise, the book devotes itself to exchange economies; an arbitrary but finite number of layers of intermediary agents are allowed for; further a wide variety of trading rules area admitted which include price setting. The partition of the agents in different layers, called hierarchical levels, determine the sequence in which agents move. Agents in higher levels move before those at lower levels. The only restriction is that agents at same levels have no trade relationship. The institutional characteristic of a trade relationship between agents \(i\), \(j\) describes the rules of trade between agents \(i\), \(j\); each signal chosen by the dominating agent restricts the choices made by the dominated agent. The existence of equilibrium depends on whether optimal action correspondences of the dominated agents are continuous with respect to the choices made by the dominating agents. The models are so set up that this aspect is not guaranteed. A weaker notion of equilibrium based on the notion of equilibrium in very nice plays due to \textit{Hellwig} and \textit{Leininger} [``On the existence of subgame perfect equilibrium in infinite-action games of perfect information'', Journal of Economic Theory 43, 55-75 (1987)] is considered considered and it is shown that this weaker notion of equilibrium exists under some conditions. The book contains apart from an introductory Chapter 1, five more chapters. Chapter 2 introduces the basic model of hierarchically structured exchange economies and other related basic concepts; Chapters 3 and 4 deal with such economies which have a hierarchical tree as their structure of trade relationship. A refinement of subgame perfect equilibrium for the generalized game associated with the economy is considered in these chapters. Chapter 5 focuses attention on a relaxation of a requirement made in Chapter 3 where it is assumed that each agent is a price taker with respect to at most one trade relationship; in Chapter 5, it is assumed that there are a `sufficient' number of agents who are price takers on at least two trade relationships. Chapter 6, the final chapter, considers hierarchical structures such that in the associated generalized game, agents move one at a time. This allows the author to use an equilibrium concept which corresponds to the notion of approximate equilibrium in very nice plays for the associated generalized sequential game of perfect information. There are two appendices; Appendix A introduces concepts from graph theory and correspondences including a statement of Weierstrass Theorem and the Maximum Theorem; Appendix B, on the other hand, introduces the terms relating to the generalized games associated with the models.