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Bargaining and efficiency in networks

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  • Abreu, Dilip
  • Manea, Mihai

Abstract

We study an infinite horizon game in which pairs of players connected in a network are randomly matched to bargain over a unit surplus. Players who reach agreement are removed from the network without replacement. The global logic of efficient matchings and the local nature of bargaining, in combination with the irreversible exit of player pairs following agreements, create severe hurdles to the attainment of efficiency in equilibrium. For many networks all Markov perfect equilibria of the bargaining game are inefficient, even as players become patient. We investigate how incentives need to be structured in order to achieve efficiency via subgame perfect, but non-Markovian, equilibria. The analysis extends to an alternative model in which individual players are selected according to some probability distribution, and a chosen player can select a neighbor with whom to bargain.

Suggested Citation

  • Abreu, Dilip & Manea, Mihai, 2012. "Bargaining and efficiency in networks," Journal of Economic Theory, Elsevier, vol. 147(1), pages 43-70.
  • Handle: RePEc:eee:jetheo:v:147:y:2012:i:1:p:43-70
    DOI: 10.1016/j.jet.2011.11.003
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    References listed on IDEAS

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    Cited by:

    1. Itay P. Fainmesser, 2012. "Community Structure and Market Outcomes: A Repeated Games-in-Networks Approach," American Economic Journal: Microeconomics, American Economic Association, vol. 4(1), pages 32-69, February.
    2. Kaniska Dam & Antonio Jimenez-Martinez, 2012. "A note on bargaining over complementary pieces of information in networks," Economics Bulletin, AccessEcon, vol. 32(4), pages 3098-3110.
    3. Gauer, F. & Hellmann, T., 2017. "Strategic formation of homogeneous bargaining networks," Games and Economic Behavior, Elsevier, vol. 106(C), pages 51-74.
    4. Abbassi, Puriya & Bräuning, Falk & Schulze, Niels, 2017. "Bargaining power and outside options in the interbank lending market," Discussion Papers 31/2017, Deutsche Bundesbank.
    5. BEDAYO, Mikel & MAULEON, Ana & VANNETELBOSCH, Vincent, 2012. "Bargaining and delay in trading networks," CORE Discussion Papers 2012046, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    6. Bedayo, Mikel & Mauleon, Ana & Vannetelbosch, Vincent, 2016. "Bargaining in endogenous trading networks," Mathematical Social Sciences, Elsevier, vol. 80(C), pages 70-82.
    7. repec:eee:jetheo:v:169:y:2017:i:c:p:218-233 is not listed on IDEAS
    8. Jackson, Matthew O. & Zenou, Yves, 2015. "Games on Networks," Handbook of Game Theory with Economic Applications, Elsevier.
    9. Hubert Franz & Cobanli Onur, 2015. "Pipeline Power: A Case Study of Strategic Network Investments," Review of Network Economics, De Gruyter, vol. 14(2), pages 75-110, June.
    10. Mihai Manea, 2011. "Bargaining in Stationary Networks," American Economic Review, American Economic Association, vol. 101(5), pages 2042-2080, August.
    11. Gauer, Florian, 2015. "Strategic Formation of Homogeneous Bargaining Networks," Annual Conference 2015 (Muenster): Economic Development - Theory and Policy 112943, Verein für Socialpolitik / German Economic Association.
    12. Nava, Francesco, 2015. "Efficiency in decentralized oligopolistic markets," Journal of Economic Theory, Elsevier, vol. 157(C), pages 315-348.
    13. Elliott, Matt & Nava, Francesco, 2018. "Decentralized bargaining in matching markets: efficient stationary equilibria and the core," LSE Research Online Documents on Economics 87219, London School of Economics and Political Science, LSE Library.
    14. Alison Watts, 2016. "Auctions Versus Private Negotiations in Buyer-Seller Networks," Games, MDPI, Open Access Journal, vol. 7(3), pages 1-14, August.
    15. Matthew O. Jackson & Brian W. Rogers & Yves Zenou, 2016. "Networks: An Economic Perspective," Papers 1608.07901, arXiv.org.
    16. Bayati, Mohsen & Borgs, Christian & Chayes, Jennifer & Kanoria, Yash & Montanari, Andrea, 2015. "Bargaining dynamics in exchange networks," Journal of Economic Theory, Elsevier, vol. 156(C), pages 417-454.
    17. Joosung Lee, 2013. "Bargaining and Buyout," 2013 Papers ple701, Job Market Papers.

    More about this item

    Keywords

    Networks; Bargaining; Efficiency; Random matching; Decentralized markets; Stochastic games;

    JEL classification:

    • C7 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory
    • D6 - Microeconomics - - Welfare Economics

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