Walrasian bargaining

Muhamet Yildiz, MIT

Abstract

Given any two-person economy, consider an alternating-offer bargaining game with complete information where the proposers offer prices, and the responders either choose the amount of trade at the offered prices or reject the offer. We provide conditions under which the outcomes of all subgame-perfect equilibria converge to theWalrasian equilibrium (the price and the allocation) as the discount rates approach 1. Therefore, price-taking behavior can be achieved with only two agents.