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Search theory, competitive equilibrium, and the Nash bargaining solution

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Listed author(s):
  • Cho, In-Koo
  • Matsui, Akihiko

Abstract

We investigate a canonical search-theoretic model without entry. Two agents are randomly matched with a long side being rationed. The matched agents face a pair of randomly drawn non-transferable payoffs, and then choose whether or not to form a partnership subject to a small probability of exogenous break down. As this probability and friction vanish, the Nash bargaining solution emerges as the unique undominated strategy equilibrium outcome if the mass of each party is the same. If the size of one party is larger than the other, the short side extracts the entire surplus, a sharp contrast to Rubinstein and Wolinsky (1985) [16].

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File URL: http://www.sciencedirect.com/science/article/pii/S0022053113000690
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Article provided by Elsevier in its journal Journal of Economic Theory.

Volume (Year): 148 (2013)
Issue (Month): 4 ()
Pages: 1659-1688

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Handle: RePEc:eee:jetheo:v:148:y:2013:i:4:p:1659-1688
DOI: 10.1016/j.jet.2013.04.003
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/622869

Keywords: Matching; Search; Undominated strategy equilibrium; Nash bargaining solution;

Find related papers by JEL classification:

  • C70 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - General
  • C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
  • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness

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  1. Rubinstein, Ariel, 1982. "Perfect Equilibrium in a Bargaining Model," Econometrica, Econometric Society, vol. 50(1), pages 97-109, January.
  2. Mortensen, Dale & Pissarides, Christopher, 2011. "Job Creation and Job Destruction in the Theory of Unemployment," Economic Policy, Russian Presidential Academy of National Economy and Public Administration, vol. 1, pages 1-19.
  3. Nash, John, 1953. "Two-Person Cooperative Games," Econometrica, Econometric Society, vol. 21(1), pages 128-140, April.
  4. Judd, Kenneth L., 1985. "The law of large numbers with a continuum of IID random variables," Journal of Economic Theory, Elsevier, vol. 35(1), pages 19-25, February.
  5. Gilboa, Itzhak & Matsui, Akihiko, 1992. "A model of random matching," Journal of Mathematical Economics, Elsevier, vol. 21(2), pages 185-197.
  6. Parikshit Ghosh & Debraj Ray, 1996. "Cooperation in Community Interaction Without Information Flows," Review of Economic Studies, Oxford University Press, vol. 63(3), pages 491-519.
  7. Nash, John, 1950. "The Bargaining Problem," Econometrica, Econometric Society, vol. 18(2), pages 155-162, April.
  8. Kiyotaki, Nobuhiro & Wright, Randall, 1989. "On Money as a Medium of Exchange," Journal of Political Economy, University of Chicago Press, vol. 97(4), pages 927-954, August.
  9. Stephan Lauermann, 2013. "Dynamic Matching and Bargaining Games: A General Approach," American Economic Review, American Economic Association, vol. 103(2), pages 663-689, April.
  10. Ken Burdett & Randall Wright, 1998. "Two-Sided Search with Nontransferable Utility," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 1(1), pages 220-245, January.
  11. Takako Fujiwara-Greve & Masahiro Okuno-Fujiwara, 2009. "Voluntarily Separable Repeated Prisoner's Dilemma," Review of Economic Studies, Oxford University Press, vol. 76(3), pages 993-1021.
  12. Rubinstein, Ariel & Wolinsky, Asher, 1985. "Equilibrium in a Market with Sequential Bargaining," Econometrica, Econometric Society, vol. 53(5), pages 1133-1150, September.
  13. Gale, Douglas, 1987. "Limit theorems for markets with sequential bargaining," Journal of Economic Theory, Elsevier, vol. 43(1), pages 20-54, October.
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Cited by:

  1. Takako Fujiwara-Greve & Masahiro Okuno-Fujiwara & Nobue Suzuki, 2015. "Efficiency may improve when defectors exist," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 60(3), pages 423-460, November.
  2. Darrell Duffie & Lei Qiao & Yeneng Sun, 2015. "Dynamic Directed Random Matching," NBER Working Papers 21731, National Bureau of Economic Research, Inc.

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