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Bilateral Bargaining with Externalities

Melbourne Business School Discussion Paper No. 2004-32

42 Pages Posted: 17 Sep 2004 Last revised: 25 Mar 2013

Catherine de Fontenay

Melbourne Business School; Department of Economics

Joshua S. Gans

University of Toronto - Rotman School of Management; NBER

Multiple version iconThere are 2 versions of this paper

Date Written: March 22, 2013

Abstract

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.

Keywords: bargaining, Shapley value, Myerson value, networks, games in partition function form

JEL Classification: C78

Suggested Citation

de Fontenay, Catherine and Gans, Joshua S., Bilateral Bargaining with Externalities (March 22, 2013). Melbourne Business School Discussion Paper No. 2004-32. Available at SSRN: https://ssrn.com/abstract=591688 or http://dx.doi.org/10.2139/ssrn.591688

Catherine De Fontenay

Melbourne Business School ( email )

200 Leicester Street
Carlton, Victoria 3053 3186
Australia

Department of Economics ( email )

Melbourne, 3010
Australia
61383443604 (Phone)
61383446899 (Fax)

Joshua Gans (Contact Author)

University of Toronto - Rotman School of Management ( email )

Canada

HOME PAGE: http://www.joshuagans.com

NBER ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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