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Bargaining Power and Value Sharing in Distribution Networks: A Cooperative Game Theory Approach

Author

Listed:
  • Roberto Roson
  • Franz Hubert

Abstract

This 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 process: 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.

Suggested Citation

  • Roberto Roson & Franz Hubert, 2014. "Bargaining Power and Value Sharing in Distribution Networks: A Cooperative Game Theory Approach," IEFE Working Papers 61, IEFE, Center for Research on Energy and Environmental Economics and Policy, Universita' Bocconi, Milano, Italy.
  • Handle: RePEc:bcu:iefewp:iefewp61
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    File URL: ftp://ftp.unibocconi.it/pub/RePEc/bcu/papers/iefewp61.pdf
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    References listed on IDEAS

    as
    1. Franz Hubert & Svetlana Ikonnikova, 2011. "Investment Options And Bargaining Power: The Eurasian Supply Chain For Natural Gas," Journal of Industrial Economics, Wiley Blackwell, vol. 59(1), pages 85-116, March.
    2. 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.
    3. Jackson, Matthew O., 2005. "Allocation rules for network games," Games and Economic Behavior, Elsevier, vol. 51(1), pages 128-154, April.
    4. Franz Hubert & Onur Cobanli, 2012. "Pipeline Power," Koç University-TUSIAD Economic Research Forum Working Papers 1224, Koc University-TUSIAD Economic Research Forum.
    5. Ekaterina Orlova & Franz Hubert, 2012. "Competition or Countervailing Power for the European Gas Market," EcoMod2012 4490, EcoMod.
    6. Stefano Moretti & Fioravante Patrone, 2008. "Rejoinder on: Transversality of the Shapley value," TOP: An Official Journal of the Spanish Society of Statistics and Operations Research, Springer;Sociedad de Estadística e Investigación Operativa, vol. 16(1), pages 60-61, July.
    7. Stefano Moretti & Fioravante Patrone, 2008. "Transversality of the Shapley value," TOP: An Official Journal of the Spanish Society of Statistics and Operations Research, Springer;Sociedad de Estadística e Investigación Operativa, vol. 16(1), pages 1-41, July.
    8. repec:cup:apsrev:v:48:y:1954:i:03:p:787-792_00 is not listed on IDEAS
    9. Orlova, Ekaterina & Hubert, Franz, 2014. "Network Access and Market Power," Annual Conference 2014 (Hamburg): Evidence-based Economic Policy 100474, Verein für Socialpolitik / German Economic Association.
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    Cited by:

    1. repec:ris:jspord:0941 is not listed on IDEAS
    2. Yu-Chung Tsao & Vu Thuy Linh, 2016. "Supply Chain Network Designs Developed for Deteriorating Items Under Conditions of Trade Credit and Partial Backordering," Networks and Spatial Economics, Springer, vol. 16(3), pages 933-956, September.
    3. repec:kap:netspa:v:17:y:2017:i:2:d:10.1007_s11067-017-9338-1 is not listed on IDEAS

    More about this item

    Keywords

    Network Markets; Cooperative Games; Distribution Networks; Bargaining.;

    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

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