Constrained Trading Networks

Trades based on bilateral (indivisible) contracts can be represented by a network. Vertices correspond to agents, whereas arcs represent the nonprice elements of a bilateral contract. Given prices for each arc, agents choose the incident arcs that maximize their utility. We enlarge the model to allow for polymatroidal constraints on the set of contracts that may be traded, which can be interpreted as modeling limited one-for-one substitution. We show that, for two-sided markets, there exists a competitive equilibrium; however, for multisided markets, this may not be possible.

Funding: This work was supported by the Defense Advanced Research Projects Agency [Grant HR001118S0045].