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Competitive Bargaining Equilibria

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Abstract

We propose a simple bargaining procedure, the equilibrium of which converges to the Walrasian allocation as the agents become increasingly patient. We thus establish that the competitive outcome obtains even if agents have market power and are not price-takers. Moreover, where in other bargaining protocols the final outcome depends on bargaining power or relative impatience, the outcome here is determinate and depends only on preferences and endowments. This procedure has therefore important implications for policy applications compared to standard bargaining rules.

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  • Julio Davila & Jan Eeckhout, 2004. "Competitive Bargaining Equilibria," Cahiers de la Maison des Sciences Economiques b04067, Université Panthéon-Sorbonne (Paris 1).
  • Handle: RePEc:mse:wpsorb:b04067
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    1. Cramton, Peter & Gibbons, Robert & Klemperer, Paul, 1987. "Dissolving a Partnership Efficiently," Econometrica, Econometric Society, vol. 55(3), pages 615-632, May.
    2. Rubinstein, Ariel, 1982. "Perfect Equilibrium in a Bargaining Model," Econometrica, Econometric Society, vol. 50(1), pages 97-109, January.
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    4. Kunimoto, Takashi & Serrano, Roberto, 2004. "Bargaining and competition revisited," Journal of Economic Theory, Elsevier, vol. 115(1), pages 78-88, March.
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    8. Mortensen, Dale T. & Pissarides, Christopher A., 1999. "New developments in models of search in the labor market," Handbook of Labor Economics,in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 39, pages 2567-2627 Elsevier.
    9. Merlo, Antonio & Wilson, Charles A, 1995. "A Stochastic Model of Sequential Bargaining with Complete Information," Econometrica, Econometric Society, vol. 63(2), pages 371-399, March.
    10. Julio Dvila & Jan Eeckhout, 2002. "Is Bargaining over Prices Efficient?," Penn CARESS Working Papers 0915aad416461c93559b9430d, Penn Economics Department.
    11. Serrano, Roberto & Volij, Oscar, 2000. "Walrasian Allocations without Price-Taking Behavior," Journal of Economic Theory, Elsevier, vol. 95(1), pages 79-106, November.
    12. Martin J. Osborne & Ariel Rubinstein, 2005. "Bargaining and Markets," Levine's Bibliography 666156000000000515, UCLA Department of Economics.
    13. Gale, Douglas M, 1986. "Bargaining and Competition Part II: Existence," Econometrica, Econometric Society, vol. 54(4), pages 807-818, July.
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    16. Arthur J. Hosios, 1990. "On The Efficiency of Matching and Related Models of Search and Unemployment," Review of Economic Studies, Oxford University Press, vol. 57(2), pages 279-298.
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    18. McDonald, Ian M & Solow, Robert M, 1981. "Wage Bargaining and Employment," American Economic Review, American Economic Association, vol. 71(5), pages 896-908, December.
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    Cited by:

    1. Julio Dávila & Jan Eeckhout & César Martinelli, 2009. "Bargaining over Public Goods," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 11(6), pages 927-945, December.
    2. repec:hal:journl:halshs-00633592 is not listed on IDEAS
    3. Anne Van den Nouweland & Agnieszka Rusinowska, 2018. "Bargaining Foundation for Ratio Equilibrium in Public Good Economies," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-01720001, HAL.
    4. Herings P.J.J. & Houba H, 2015. "Costless delay in negotiations," Research Memorandum 002, Maastricht University, Graduate School of Business and Economics (GSBE).
    5. Penta, Antonio, 2011. "Multilateral bargaining and Walrasian equilibrium," Journal of Mathematical Economics, Elsevier, vol. 47(4-5), pages 417-424.
    6. Anne van den Nouweland & Agnieszka Rusinowka, 2018. "Bargaining Foundation for Ratio Equilibrium in Public Good Economies," Documents de travail du Centre d'Economie de la Sorbonne 18004, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne.
    7. Jacek B. Krawczyk & Mabel Tidball, 2016. "Economic Problems with Constraints: How Efficiency Relates to Equilibrium," International Game Theory Review (IGTR), World Scientific Publishing Co. Pte. Ltd., vol. 18(04), pages 1-19, December.

    More about this item

    Keywords

    Alternating-offers bargaining; Walrasian equilibrium; price-setting; quantity constraints.;

    JEL classification:

    • C60 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - General
    • C71 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Cooperative Games
    • D41 - Microeconomics - - Market Structure, Pricing, and Design - - - Perfect Competition
    • D51 - Microeconomics - - General Equilibrium and Disequilibrium - - - Exchange and Production Economies

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