Competitive Bargaining Equilibrium

Abstract

We propose a simple bargaining procedure, the equilibrium of which converges to the Walrasian allocation as the agents become increasingly patient. We thus establish that the competitive outcome obtains even if agents have market power and are not price-takers. Moreover, where in other bargaining protocols the final outcome depends on bargaining power or relative impatience, the outcome here is determinate and depends only on preferences and endowments. This procedure has therefore important implications for policy applications compared to standard bargaining rules.

Keywords: Bargaining, Walrasian Equilibrium, Price-setting, Quantity Constraints, Search, Matching

JEL Classification: C60, C71, D41, D51