Bargaining foundations for price taking in matching markets

36 Pages Posted: 4 Aug 2018 Last revised: 16 May 2024

See all articles by Matthew Elliott

Matthew Elliott

University of Cambridge

Eduard Talamàs

IESE Business School

Abstract

Agents make non-contractible investments before bargaining over who matches with whom and their terms of trade. When an agent is a price taker—in the sense that her investments do not change her potential partners’ payoffs—she has incentives to make socially-optimal investments. Across a variety of non-cooperative bargaining models featuring dynamic entry, we show that everyone necessarily becomes a price taker as the discount factor goes to if there is a minimal amount of competition always present in the market. If this condition is not satisfied, dynamic entry need not create enough competition to guarantee price taking even if agents are arbitrarily patient.

Keywords: Noncooperative bargaining; price taking; investment incentives; holdup problem.

JEL Classification: C72; C78; D40; D41

Suggested Citation

Elliott, Matthew and Talamàs, Eduard, Bargaining foundations for price taking in matching markets. Available at SSRN: https://ssrn.com/abstract=3218411 or http://dx.doi.org/10.2139/ssrn.3218411

Matthew Elliott (Contact Author)

University of Cambridge ( email )

Trinity Ln
Cambridge, CB2 1TN
United Kingdom

Eduard Talamàs

IESE Business School ( email )

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

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