Bargaining Power and Value Sharing in Distribution Networks: a Cooperative Game Theory Approach
AbstractThis paper illustrates a methodology for analyzing bargaining games on network markets, by means of numerical models that can be calibrated with real data. Economic incentives to join or to expand a network depend on how the network surplus is being distributed, which in turn depends on a variety of factors: position of each agent (e.g., a country) in a specific network, its reliability in the cooperation scheme (e.g., geo-political stability), existence of market distortions and availability of outside options (e.g., alternative energy sources). This study is aimed at presenting a game theory methodology that can be applied to real world cases, having the potential to shed light on several political economy issues. The methodology is presented and illustrated with application to a fictitious network structure. The method is based on a two-stage pro- cess: first, a network optimization model is used to generate payoff values under different coalitions and network structures; a second model is subsequently employed to identify cooperative game solutions. Any change in the network structure entails both a variation in the overall welfare level and in the distribution of surplus among agents, as it affects their relative bargaining power. Therefore, expected costs and benefits, at the aggregate as well as at the individual level, can be compared to assess the economic viability of any investment in network infrastructure. A number of model variants and extensions are also considered: changing demand, exogenous instability factors, market distortions, externalities and outside options.
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Bibliographic InfoPaper provided by Department of Economics, University of Venice "Ca' Foscari" in its series Working Papers with number 2014:02.
Date of creation: 2014
Date of revision:
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Postal: Cannaregio, S. Giobbe no 873 , 30121 Venezia
Web page: http://www.unive.it/dip.economia
More information through EDIRC
Network Markets; Cooperative Games; Distribution Networks; Bargaining.;
Find related papers by JEL classification:
- C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques
- C71 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Cooperative Games
- L95 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Gas Utilities; Pipelines; Water Utilities
This paper has been announced in the following NEP Reports:
- NEP-ALL-2014-02-02 (All new papers)
- NEP-GTH-2014-02-02 (Game Theory)
- NEP-NET-2014-02-02 (Network Economics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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