Formation of Buyer-Seller Trade Networks in a Quality-Di¤erentiated Product Market,”Canadian

We examine the formation of buyer-seller links in an environment where exchange can only take place if such a link exists. Sellers can produce products of different qualities and multiple sellers of uniform or mixed quality can form an association to pool their customers setting uniform prices (called a sellers ’ association). Buyers may form a trade link with either an individual seller or with a sellers’ association. We show which buyer-seller links will form and find the set of links (or networks) which are stable. We find that a trade network mismatch may occur in the absence of market or informational frictions, where a high quality good may remain unsold even without an economy-wide excess supply of goods. Additionally, we show how these buyer-seller networks influence the price paid for the good or service exchanged. Specifically, we establish conditions on the network for which the seller (or sellers’ association) is guaranteed a non-negligible positive payoff and conditions on the network for which the buyer is guaranteed a non-negligible positive surplus