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...eing re-matched entails a cost. The cost can come in many forms, such as being cast into a matching market with frictions, as in the pioneering work of [19], having to start a new relationship that requires a specific investment [17], or having to start with small stakes in a new relationship [23, 24].5 New relationships may also entail a phase of gradual trust 4See [21] for an overview of the large literature regarding the concept of social capital. With a related motivation, but very different analysis, Vega-Redondo [22] studies social capital in a stochastically evolving network. 5[16] and [3] contribute to the search literature in the context of relational contracts. 4 building, as in [8] and [5], or the payment of a bond, as in [14].6 A crucial element common to all of this research is that an agent is involved in at most one relationship at any given time. All of the equilibria that are studied by this literature use strategies with the property that actions evolve in a non-trivial way throughout the course of a given relationship. In a networked society in which an agent continues to form new relationships while maintaining older relationships, these constructions have no natur...

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...made segmentation endogenous, arising due to nonlinearities in monitoring technology, differences in setup and adjustment costs, or on-the-job search (e.g., Albrecht and Vroman 1992, Saint-Paul 1996, =-=Board and Meyer-ter-Vehn 2011-=-). We provide further theoretical insights on how market segmentation can emerge endogenously despite homogeneous technology across firms when the production technology exhibits decreasing returns to ...