Formation of Bargaining Networks via Link Sharing

43 Pages Posted: 6 Jun 2014 Last revised: 6 Dec 2014

See all articles by Sofia Priazhkina

Sofia Priazhkina

Indiana University

Frank H. Page

Systemic Risk Centre, LSE; Indiana University, Bloomington - Department of Economics

Date Written: December 5, 2014

Abstract

This paper presents a model of bargaining networks between sellers and buyers, when some sellers are willing to share access to their local markets. Given a status quo network, game is played in two stages: in the first stage, sellers form a new network by signing two-sided contracts; in the second stage, sellers and buyers bargain for the good. We propose one period bargaining mechanism, which links to the current bargaining network literature and assignment game. Using the mechanism twice in the game, we characterize the subgame perfect equilibria with pairwise (Nash) stable agreements. When the equilibrium exists, sharing always increases total volume of trade but may diminish the total market surplus on the behalf of sellers.

In the homogeneous case, equilibrium exists when number of buyers is significantly large or market has no new entrants. Under other parametrization, equilibrium exists only in special cases. When the global market is dominated by sellers and bargaining power of sellers relative to buyers is large, surplus is divided relatively equitably. In other cases, surplus is reallocated to sellers. In the equilibrium, two-part sharing contracts endogenously control for a hold up problem and seller's defaults. It is also shown that in the special case of the model with only one monopolistic seller and no new entrants, the sharing process organizes sellers in the supply chain order with “pine tree” structure and non-trivial contracts.

Keywords: Social Networks, Oligopoly Pricing, Collusion, Market Sharing Agreements

JEL Classification: L11, L140, L120

Suggested Citation

Priazhkina, Sofia and Page, Frank H., Formation of Bargaining Networks via Link Sharing (December 5, 2014). FEEM Working Paper No. 52.2014, Available at SSRN: https://ssrn.com/abstract=2446428 or http://dx.doi.org/10.2139/ssrn.2446428

Sofia Priazhkina (Contact Author)

Indiana University ( email )

107 S Indiana Ave
100 South Woodlawn
Bloomington, IN 47405
United States

Frank H. Page

Systemic Risk Centre, LSE ( email )

Houghton St
London, WC2A 2AE
United Kingdom

HOME PAGE: http://www.systemicrisk.ac.uk/

Indiana University, Bloomington - Department of Economics ( email )

Wylie Hall
Bloomington, IN 47405-6620
United States

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