Nash Bargaining With Endogenous Outside Options

34 Pages Posted: 9 Jan 2017 Last revised: 17 Nov 2020

Abstract

This paper describes a non-cooperative theory of bargaining in stationary markets that provides a generalization of the Nash bargaining solution to coalition formation problems. This generalization prevents outside options from being determined in a circular way and, remarkably, always yields a unique prediction. The equilibrium uncovers an endogenous vertical market structure such that the effects of changes in fundamentals propagate—via outside options—from the top down, but not vice versa. In markets that are vertically differentiated by skill, changes at the bottom do not affect those at the top. Moreover, if there is positive assortative matching, changes at the top affect those at the bottom only if they also affect everyone in between.

Keywords: Nash bargaining; endogenous outside options; non-cooperative bargaining; coalition formation

JEL Classification: C78, D85

Suggested Citation

Talamàs, Eduard, Nash Bargaining With Endogenous Outside Options. Available at SSRN: https://ssrn.com/abstract=2892109 or http://dx.doi.org/10.2139/ssrn.2892109

Eduard Talamàs (Contact Author)

IESE Business School ( email )

Arnús i Garí, 3-7
Barcelona, Philadelphia 08034
Spain

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
270
Abstract Views
2,104
Rank
221,371
PlumX Metrics