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Simultaneous Nash Bargaining with Consistent Beliefs

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  • Roberto Burguet
  • Ramon Caminal

Abstract

We propose and analyze a new solution concept, theR-solution, for three-person, transferable utility, cooperative games. In the spirit of the Nash Bargaining Solution, our concept is founded on the predicted outcomes of simultaneous, two-party negotiations that would be the alternative to the grand coalition. These possibly probabilistic predictions are based on consistent beliefs. We analyze the properties of theR-solution and compare it with the Shapley value and other concepts. The R-solution exists and is unique. It belongs to the bargaining set and to the core whenever the latter is not empty. In fact, when the grand coalition can simply execute one of the three possible bilateral trades, the R-solution is the most egalitarian selection of the bargaining set. Finally, we discuss how theR-solution changes important conclusions of several well known Industrial Organization models.

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Bibliographic Info

Paper provided by Barcelona Graduate School of Economics in its series Working Papers with number 521.

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Date of creation: Nov 2010
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Handle: RePEc:bge:wpaper:521

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Keywords: cooperative games; bargaining; endogenous fallback options; consistent beliefs; R-solution;

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References

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  1. Hart, Oliver & Moore, John, 1990. "Property Rights and the Nature of the Firm," Journal of Political Economy, University of Chicago Press, vol. 98(6), pages 1119-58, December.
  2. Horn, Henrik & Persson, Lars, 2001. "Endogenous mergers in concentrated markets," International Journal of Industrial Organization, Elsevier, vol. 19(8), pages 1213-1244, September.
  3. David de Meza & Mariano Selvaggi, 2004. "Exclusive Contracts Foster Relationship-Specific Investment," The Centre for Market and Public Organisation 04/105, Department of Economics, University of Bristol, UK.
  4. Sven-Olof Fridolfsson & Johan Stennek, 2005. "Why Mergers Reduce Profits And Raise Share Prices-A Theory Of Preemptive Mergers," Journal of the European Economic Association, MIT Press, vol. 3(5), pages 1083-1104, 09.
  5. Olivier Compte & Philippe Jehiel, 2010. "The Coalitional Nash Bargaining Solution," Econometrica, Econometric Society, vol. 78(5), pages 1593-1623, 09.
  6. Winter, Eyal, 2002. "The shapley value," Handbook of Game Theory with Economic Applications, in: R.J. Aumann & S. Hart (ed.), Handbook of Game Theory with Economic Applications, edition 1, volume 3, chapter 53, pages 2025-2054 Elsevier.
  7. Hart, Sergiu & Mas-Colell, Andreu, 1989. "Potential, Value, and Consistency," Econometrica, Econometric Society, vol. 57(3), pages 589-614, May.
  8. David De Meza & Ben Lockwood, 1998. "Does Asset Ownership Always Motivate Managers? Outside Options And The Property Rights Theory Of The Firm," The Quarterly Journal of Economics, MIT Press, vol. 113(2), pages 361-386, May.
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Cited by:
  1. Burguet, Roberto & Caminal, Ramon, 2012. "Bargaining failures and merger policy," CEPR Discussion Papers 8989, C.E.P.R. Discussion Papers.

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