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Competitive Bargaining Equilibrium

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  • Julio Dávila

    ()
    (Department of Economics, University of Pennsylvania)

  • Jan Eeckhout

    ()
    (Department of Economics, University of Pennsylvania)

Abstract

We propose a simple bargaining procedure, the equilibrium of which converges to the Walrasian allocation as the agents become increasingly patient. We thus establish that the competitive outcome obtains even if agents have market power and are not price-takers. Moreover, where in other bargaining protocols the final outcome depends on bargaining power or relative impatience, the outcome here is determinate and depends only on preferences and endowments. This procedure has therefore important implications for policy applications compared to standard bargaining rules.

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Bibliographic Info

Paper provided by Penn Institute for Economic Research, Department of Economics, University of Pennsylvania in its series PIER Working Paper Archive with number 04-024.

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Length: 38 pages
Date of creation: 01 May 2004
Date of revision:
Handle: RePEc:pen:papers:04-024

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Keywords: Bargaining; Walrasian Equilibrium; Price-setting; Quantity Constraints; Search; Matching;

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References

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  1. Daron Acemoglu & Robert Shimer, 1998. "Holdups and Efficiency with Search Frictions," Working papers, Massachusetts Institute of Technology (MIT), Department of Economics 98-14, Massachusetts Institute of Technology (MIT), Department of Economics.
  2. Acemoglu, D. & Shimer, R., 1997. "Efficient Unemployment Insurance," Working papers, Massachusetts Institute of Technology (MIT), Department of Economics 97-9, Massachusetts Institute of Technology (MIT), Department of Economics.
  3. Sutton, John, 1986. "Non-cooperative Bargaining Theory: An Introduction," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 53(5), pages 709-24, October.
  4. Mortensen, Dale T. & Pissarides, Christopher A., 1999. "New developments in models of search in the labor market," Handbook of Labor Economics, Elsevier, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 39, pages 2567-2627 Elsevier.
  5. Merlo, Antonio & Wilson, Charles A, 1995. "A Stochastic Model of Sequential Bargaining with Complete Information," Econometrica, Econometric Society, Econometric Society, vol. 63(2), pages 371-99, March.
  6. Kunimoto, Takashi & Serrano, Roberto, 2004. "Bargaining and competition revisited," Journal of Economic Theory, Elsevier, Elsevier, vol. 115(1), pages 78-88, March.
  7. Yildiz, Muhamet, 2003. "Walrasian bargaining," Games and Economic Behavior, Elsevier, Elsevier, vol. 45(2), pages 465-487, November.
  8. Rubinstein, Ariel, 1982. "Perfect Equilibrium in a Bargaining Model," Econometrica, Econometric Society, Econometric Society, vol. 50(1), pages 97-109, January.
  9. Gale, Douglas M, 1986. "Bargaining and Competition Part II: Existence," Econometrica, Econometric Society, Econometric Society, vol. 54(4), pages 807-18, July.
  10. Serrano, Roberto & Volij, Oscar, 2000. "Walrasian Allocations without Price-Taking Behavior," Journal of Economic Theory, Elsevier, Elsevier, vol. 95(1), pages 79-106, November.
  11. Gale, Douglas M, 1986. "Bargaining and Competition Part I: Characterization," Econometrica, Econometric Society, Econometric Society, vol. 54(4), pages 785-806, July.
  12. Moldovanu, Benny & Fieseler, Karsten & Kittsteiner, Thomas, 1999. "Partnerships, Lemons and Efficient Trade," Sonderforschungsbereich 504 Publications, Sonderforschungsbereich 504, Universität Mannheim;Sonderforschungsbereich 504, University of Mannheim 01-18, Sonderforschungsbereich 504, Universität Mannheim;Sonderforschungsbereich 504, University of Mannheim.
  13. Julio Dvila & Jan Eeckhout, 2002. "Is Bargaining over Prices Efficient?," Penn CARESS Working Papers, Penn Economics Department 0915aad416461c93559b9430d, Penn Economics Department.
  14. Benny Moldovanu, 2002. "How to Dissolve a Partnership," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, Mohr Siebeck, Tübingen, vol. 158(1), pages 66-, March.
  15. Peter Cramton & Robert Gibbons & Paul Klemperer, 1987. "Dissolving a Partnership Efficiently," Papers of Peter Cramton 87econ, University of Maryland, Department of Economics - Peter Cramton, revised 09 Jun 1998.
  16. Hosios, Arthur J, 1990. "On the Efficiency of Matching and Related Models of Search and Unemployment," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 57(2), pages 279-98, April.
  17. Martin J. Osborne & Ariel Rubinstein, 2005. "Bargaining and Markets," Levine's Bibliography 666156000000000515, UCLA Department of Economics.
  18. McDonald, Ian M & Solow, Robert M, 1981. "Wage Bargaining and Employment," American Economic Review, American Economic Association, American Economic Association, vol. 71(5), pages 896-908, December.
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Cited by:
  1. repec:hal:journl:halshs-00633592 is not listed on IDEAS
  2. DAVILA, Julio & EECKHOUT, Jan & MARTINELLI, César, . "Bargaining over public goods," CORE Discussion Papers RP, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) -2185, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  3. repec:hal:journl:halshs-00289435 is not listed on IDEAS
  4. Penta, Antonio, 2011. "Multilateral bargaining and Walrasian equilibrium," Journal of Mathematical Economics, Elsevier, vol. 47(4-5), pages 417-424.

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