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Bargaining and Buyout

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  • Joosung Lee

Abstract

I introduce a noncooperative coalitional bargaining model for characteristic function form games. A player not only buys out other players' resources and rights with upfront transfers as in Gul (Econometrica, 1989), but also strategically chooses partners instead of bargaining with a randomly selected opponent. Such transactions among players are interpreted as coalition formation. The main theorem provides a general inefficiency result. If a characteristic function form game has a strict subcoalition with a strictly positive worth and a player with a strictly positive marginal contribution to the grand-coalition, then an efficient stationary subgame perfect equilibrium does not exist, as long as the discount factor is sufficiently high but strictly less than 1. Two special results are established. A grand-coalition equilibrium is impossible when players are sufficiently patient, unless the characteristic function form game is a unanimity game. For a simple game with a veto player and multiple winning coalitions, a non-minimal winning coalition is formed with positive probability. In two applications, I study players' strategic alliance behavior and the effect of the strategic behavior on inequality. First, for three-player simple games, the equilibrium payoff vector Lorenz-dominates both the Shapley-Shubik power index and the core-constrained Nash bargaining solution. Second, for wage bargaining games, workers endogenously form a union and their equilibrium payoffs can be greater than marginal products.

Suggested Citation

  • Joosung Lee, 2013. "Bargaining and Buyout," 2013 Papers ple701, Job Market Papers.
  • Handle: RePEc:jmp:jm2013:ple701
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    References listed on IDEAS

    as
    1. Okada, Akira, 1996. "A Noncooperative Coalitional Bargaining Game with Random Proposers," Games and Economic Behavior, Elsevier, vol. 16(1), pages 97-108, September.
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    6. Kalyan Chatterjee & Bhaskar Dutia & Debraj Ray & Kunal Sengupta, 2013. "A Noncooperative Theory of Coalitional Bargaining," World Scientific Book Chapters,in: Bargaining in the Shadow of the Market Selected Papers on Bilateral and Multilateral Bargaining, chapter 5, pages 97-111 World Scientific Publishing Co. Pte. Ltd..
    7. Lee, Joosung & Driessen, Theo S.H., 2012. "Sequentially two-leveled egalitarianism for TU games: Characterization and application," European Journal of Operational Research, Elsevier, vol. 220(3), pages 736-743.
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    More about this item

    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
    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • D74 - Microeconomics - - Analysis of Collective Decision-Making - - - Conflict; Conflict Resolution; Alliances; Revolutions

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