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Bargaining and delay in trading networks

Author

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  • BEDAYO, Mikel

    () (Université catholique de Louvain, CORE, B-1348 Louvain-la-Neuve, Belgium)

  • MAULEON, Ana

    () (Université catholique de Louvain, CORE, B-1348 Louvain-la-Neuve, Belgium and CEREC, University of Saint-Louis, B-1000 Brussels, Belgium)

  • VANNETELBOSCH, Vincent

    () (Université catholique de Louvain, CORE, B-1348 Louvain-la-Neuve, Belgium and CEREC, University of Saint-Louis, B-1000 Brussels, Belgium)

Abstract

We study a model in which heterogenous agents first form a trading network where link formation is costless. Then, a seller and a buyer are randomly selected among the agents to bargain through a chain of intermediaries. We determine both the trading path and the allocation of the surplus among the seller, the buyer and the intermediaries at equilibrium. We show that a trading network is pairwise stable if and only if it is a core periphery network where the core consists of all weak (or impatient) agents who are linked to each other and the periphery consists of all strong (or patient) agents who have a single link towards a weak agent. Once agents do not know the impatience of the other agents, each bilateral bargaining session may involve delay, but not perpetual disagreement, in equilibrium. When an agent chooses another agent on a path from the buyer to the seller to negotiate bilaterally a partial agreement, her choice now depends both on the type of this other agent and on how much time the succeeding agents on the path will need to reach their partial agreements. We provide sufficient conditions such that core periphery networks are pairwise stable in presence of private information.

Suggested Citation

  • 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).
  • Handle: RePEc:cor:louvco:2012046
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    References listed on IDEAS

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    Cited by:

    1. Rong, Rong & Houser, Daniel, 2015. "Growing stars: A laboratory analysis of network formation," Journal of Economic Behavior & Organization, Elsevier, vol. 117(C), pages 380-394.
    2. Marco van der Leij & Daan in 't Veld & Cars Hommes, 2014. "The Formation of a Core Periphery Structure in Heterogeneous Financial Networks," Tinbergen Institute Discussion Papers 14-098/II, Tinbergen Institute, revised 11 Aug 2016.

    More about this item

    Keywords

    bargaining; trading networks; private information;

    JEL classification:

    • C70 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - General
    • D60 - Microeconomics - - Welfare Economics - - - General
    • J50 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - General

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