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Bargaining foundations for price taking in matching markets

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  • Elliott, Matthew
  • Talamas, Eduard

Abstract

Agents make non-contractible investments before bargaining over who matches with whom and their terms of trade. When an agent is a price taker—in the sense that her investments do not change her potential partners’ payoffs—she has incentives to make socially-optimal investments. Across a variety of non-cooperative bargaining models featuring dynamic entry, we show that everyone necessarily becomes a price taker as the discount factor goes to 1 if there is a minimal amount of competition always present in the market. If this condition is not satisfied, dynamic entry need not create enough competition to guarantee price taking even if agents are arbitrarily patient.

Suggested Citation

  • Elliott, Matthew & Talamas, Eduard, 2024. "Bargaining foundations for price taking in matching markets," CEPR Discussion Papers 19568, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:19568
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    File URL: https://cepr.org/publications/DP19568
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