Dynamic Multilateral Markets
We study dynamic multilateral markets, in which players' payoffs result from coalitional bargaining. We establish payoff uniqueness of stationary equilibria and the emergence of endogenous cooperation structures when traders experience some degree of (heterogeneous) bargaining frictions. When we focus on market games with different player types, we derive, under mild conditions, an explicit formula for each type's equilibrium payoff as market frictions vanish. We further apply this methodology to the analysis of labor markets. From our general results, we can determine the endogenous composition of the equilibrium firm and the remuneration scheme.
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