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Competitive bargaining equilibrium

  • Dávila, J.
  • Eeckhout, J.

In a simple exchange economy we propose a bargaining procedure that leads to a Walrasian outcome as the agents become increasingly patient. The competitive outcome therefore 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. Our bargaining procedure involves bargaining over prices and maximum quantity constraints, and it guarantees convergence to a Walrasian outcome for any standard exchange economy. In contrast, without quantity constraints we show that equilibrium is generically inefficient.

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Article provided by Elsevier in its journal Journal of Economic Theory.

Volume (Year): 139 (2008)
Issue (Month): 1 (March)
Pages: 269-294

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Handle: RePEc:eee:jetheo:v:139:y:2008:i:1:p:269-294
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/622869

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  1. Ariel Rubinstein, 2010. "Perfect Equilibrium in a Bargaining Model," Levine's Working Paper Archive 252, David K. Levine.
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  15. Julio Dvila & Jan Eeckhout, 2002. "Is Bargaining over Prices Efficient?," Penn CARESS Working Papers 0915aad416461c93559b9430d, Penn Economics Department.
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  18. Benny Moldovanu, 2002. "How to Dissolve a Partnership," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 158(1), pages 66-, March.
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