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Dynamic Multilateral Markets

  • Arnold Polanski

    (School of Economics, University of East Anglia)

  • Emiliya A. Lazarova

    (University of Birmingham)

We study dynamic multilateral markets, in which players’ payoffs result from coalitional bargaining. In this setting, we establish payoff uniqueness of the stationary equilibria when players exhibit some degree of impatience. We focus on market games with different player types, and derive under mild conditions an explicit formula for each type’s equilibrium payoff as market frictions vanish. The limit payoff of a type depends in an intuitive way on the supply and the demand for this type in the market, adjusted by the type-specific bargaining power. Our framework may be viewed as an alternative to the Walrasian price-setting mechanism. When we apply this methodology to the analysis of labor markets, we can determine endogenously the equilibrium firm size and remuneration scheme. We find that each worker type in a stationary market equilibrium is rewarded her marginal product, i.e. we obtain a strategic underpinning of the neoclassical wage. Interestingly, we can also replicate some standardized facts from the search-theoretical literature such as positive equilibrium unemployment.

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Paper provided by Fondazione Eni Enrico Mattei in its series Working Papers with number 2011.44.

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Date of creation: Jun 2011
Date of revision:
Handle: RePEc:fem:femwpa:2011.44
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  1. Eran Yashiv, 2007. "Labor search and matching in macroeconomics," LSE Research Online Documents on Economics 19707, London School of Economics and Political Science, LSE Library.
  2. Yashiv, Eran, 2007. "Labor Search and Matching in Macroeconomics," IZA Discussion Papers 2743, Institute for the Study of Labor (IZA).
  3. Mihai Manea, 2011. "Bargaining in Stationary Networks," American Economic Review, American Economic Association, vol. 101(5), pages 2042-80, August.
  4. Darrell Duffie & Nicolae Garleanu & Lasse Heje Pedersen, 2005. "Over-the-Counter Markets," Econometrica, Econometric Society, vol. 73(6), pages 1815-1847, November.
  5. Westermark, Andreas, 2003. "Bargaining, binding contracts, and competitive wages," Games and Economic Behavior, Elsevier, vol. 43(2), pages 296-311, May.
  6. Okada, Akira, 1996. "A Noncooperative Coalitional Bargaining Game with Random Proposers," Games and Economic Behavior, Elsevier, vol. 16(1), pages 97-108, September.
  7. John Sutton, 1986. "Non-Cooperative Bargaining Theory: An Introduction," Review of Economic Studies, Oxford University Press, vol. 53(5), pages 709-724.
  8. Huibin Yan, 2003. "Noncooperative selection of the core," International Journal of Game Theory, Springer;Game Theory Society, vol. 31(4), pages 527-540, 09.
  9. K. G. Binmore & M. J. Herrero, 1988. "Matching and Bargaining in Dynamic Markets," Review of Economic Studies, Oxford University Press, vol. 55(1), pages 17-31.
  10. Alain Delacroix, 2003. "Heterogeneous Matching with Transferable Utility: Two Labor Market Applications," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 44(1), pages 313-330, February.
  11. Okada, Akira, 2007. "Coalitional Bargaining Games with Random Proposers: Theory and Application," Discussion Papers 2007-10, Graduate School of Economics, Hitotsubashi University.
  12. Ariel Rubinstein, 2010. "Perfect Equilibrium in a Bargaining Model," Levine's Working Paper Archive 661465000000000387, David K. Levine.
  13. Chen-Ying Huang, 2002. "Multilateral bargaining: conditional and unconditional offers," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 20(2), pages 401-412.
  14. Gul, Faruk, 1989. "Bargaining Foundations of Shapley Value," Econometrica, Econometric Society, vol. 57(1), pages 81-95, January.
  15. Lars A. Stole & Jeffrey Zwiebel, 1996. "Intra-firm Bargaining under Non-binding Contracts," Review of Economic Studies, Oxford University Press, vol. 63(3), pages 375-410.
  16. Yashiv, Eran, 2007. "Labor search and matching in macroeconomics," European Economic Review, Elsevier, vol. 51(8), pages 1859-1895, November.
  17. Chatterjee, K. & Sabourian, H., 1997. "Multiperson Bargaining and Strategic Complexity," Cambridge Working Papers in Economics 9733, Faculty of Economics, University of Cambridge.
  18. Siedlarek, Jan-Peter, 2014. "Intermediation in Networks," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 471, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
  19. Arnold Polanski & Fernando Vega-Redondo, 2013. "Markets, Bargaining, and Networks with Heterogeneous Agents," University of East Anglia Applied and Financial Economics Working Paper Series 038, School of Economics, University of East Anglia, Norwich, UK..
  20. Eran Yashiv, 2007. "Labor Search and Matching in Macroeconomics," CEP Discussion Papers dp0803, Centre for Economic Performance, LSE.
  21. Vijay Krishna & Roberto Serrano, 1996. "Multilateral Bargaining," Review of Economic Studies, Oxford University Press, vol. 63(1), pages 61-80.
  22. Kalyan Chatterjee & Bhaskar Dutta & Debraj Ray & Kunal Sengupta, 1993. "A Noncooperative Theory of Coalitional Bargaining," Review of Economic Studies, Oxford University Press, vol. 60(2), pages 463-477.
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