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Delay in Bargaining with Externalities

Author

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  • Björnerstedt, Jonas

    () (Swedish Competition Authority)

  • Westermark, Andreas

    () (Department of Economics)

Abstract

This paper studies infinite-horizon bargaining between a seller and multiple buyers when externalities are present. We extend the analysis in Jehiel & Moldovanu (1995a), by allowing for both pure and mixed equilibria. This extension is warranted, since under some circumstances,the complexity of the equilibria with bounded recall they analyze tend to infinity as players become very patient. We show that stationary subgame perfect equilibria always exist. Moreover, a characterization of the stationary subgame perfect equilibria in generic games is presented. Equilibria with delay exist only for strong positive externalities. Since ach buyer receives a positive payoff when the seller agrees with some other buyer, positive externalities induces a war of attrition between buyers. Furthermore, the results when analyzing mixed stationary equilibria are different than when focusing on pure strategies with bounded recall as Jehiel & Moldovanu (1995a). Specifically, they find delay only when externalities are negative.

Suggested Citation

  • Björnerstedt, Jonas & Westermark, Andreas, 2006. "Delay in Bargaining with Externalities," Working Paper Series 2006:29, Uppsala University, Department of Economics.
  • Handle: RePEc:hhs:uunewp:2006_029
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    References listed on IDEAS

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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. Mas-Colell,Andreu, 1990. "The Theory of General Economic Equilibrium," Cambridge Books, Cambridge University Press, number 9780521388702, March.
    3. Jehiel, Philippe & Moldovanu, Benny, 1995. "Negative Externalities May Cause Delay in Negotiation," Econometrica, Econometric Society, vol. 63(6), pages 1321-1335, November.
    4. Horn, Henrik & Wolinsky, Asher, 1988. "Worker Substitutability and Patterns of Unionisation," Economic Journal, Royal Economic Society, vol. 98(391), pages 484-497, June.
    5. Jehiel, Philippe & Moldovanu, Benny & Stacchetti, Ennio, 1996. "How (Not) to Sell Nuclear Weapons," American Economic Review, American Economic Association, vol. 86(4), pages 814-829, September.
    6. Cai, Hongbin, 2000. "Delay in Multilateral Bargaining under Complete Information," Journal of Economic Theory, Elsevier, vol. 93(2), pages 260-276, August.
    7. Westermark, Andreas, 2003. "Bargaining, binding contracts, and competitive wages," Games and Economic Behavior, Elsevier, vol. 43(2), pages 296-311, May.
    8. E. Roy Weintraub, 1992. "Introduction," History of Political Economy, Duke University Press, vol. 24(5), pages 3-12, Supplemen.
    9. Peter C. Cramton, 1992. "Strategic Delay in Bargaining with Two-Sided Uncertainty," Review of Economic Studies, Oxford University Press, vol. 59(1), pages 205-225.
    10. Fernandez, Raquel & Glazer, Jacob, 1991. "Striking for a Bargain between Two Completely Informed Agents," American Economic Review, American Economic Association, vol. 81(1), pages 240-252, March.
    11. Philippe Jehiel & Benny Moldovanu, 1995. "Cyclical Delay in Bargaining with Externalities," Review of Economic Studies, Oxford University Press, vol. 62(4), pages 619-637.
    12. Armando Gomes, 2005. "Multilateral Contracting with Externalities," Econometrica, Econometric Society, vol. 73(4), pages 1329-1350, July.
    13. Anat R. Admati & Motty Perry, 1987. "Strategic Delay in Bargaining," Review of Economic Studies, Oxford University Press, vol. 54(3), pages 345-364.
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    Cited by:

    1. Ohlsson, Henry, 2011. "The legacy of the Swedish gift and inheritance tax, 1884–2004," European Review of Economic History, Cambridge University Press, vol. 15(03), pages 539-569, December.
    2. Sören Blomquist & Vidar Christiansen & Luca Micheletto, 2010. "Public Provision of Private Goods and Nondistortionary Marginal Tax Rates," American Economic Journal: Economic Policy, American Economic Association, vol. 2(2), pages 1-27, May.

    More about this item

    Keywords

    Bargaining; externalities; delay;

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
    • D62 - Microeconomics - - Welfare Economics - - - Externalities

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