Bilateral Bargaining with Externalities
Catherine De Fontenay
Melbourne Business School; Department of Economics
Joshua S. Gans
University of Toronto - Rotman School of Management; NBER
March 22, 2013
Melbourne Business School Discussion Paper No. 2004-32
This paper provides an analysis of a non-cooperative pairwise bargaining game between agents in a network. We establish that there exists an equilibrium that generates a coalitional bargaining division of the reduced surplus that arises as a result of externalities between agents. That is, we provide a non-cooperative justification for a cooperative division of a non-cooperative surplus. The resulting division is akin to the Myerson-Shapley value with properties that are particularly useful and tractable in applications. We demonstrate this by examining buyer-seller networks and vertical foreclosure.
Number of Pages in PDF File: 42
Keywords: bargaining, Shapley value, Myerson value, networks, games in partition function form
JEL Classification: C78
Date posted: September 17, 2004 ; Last revised: March 25, 2013
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