This paper presents a bargaining model between individuals belonging to different groups where the equilibrium outcome depends on the communication network within each group. Belonging to a group gives an informational advantage: connections help to gather information about past transactions and this information can be used to make more accurate demands in future bargaining rounds. In the long-term there is a unique stochastically stable equilibruim which depends on the peripheral or least connected individuals in each group. Comparative statistics shows that a denser and more homogeneous network allows members of a group to obtain a better deal. An empirical analysis of the observed price differential between Asian and white buyers in New York’s Fulton fish market is consistent with these predictions. An extension explores an alternative set-up where buyers and sellers belong to the same communication network: if the network is regular and the agents are homogeneous then the equilibrium division in 50-50.
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Paper provided by University of Oxford, Department of Economics in its series Economics Series Working Papers with number
443.
Find related papers by JEL classification: C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search, Learning, and Information
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