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Article
Bilateral Bargaining with Externalities
Journal of Industrial Economics (2014)
  • Catherine C de Fontenay, Melbourne Business School
  • Joshua S Gans
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
Publication Date
December, 2014
Citation Information
Catherine C. de Fontenay and Joshua S. Gans. "Bilateral Bargaining with Externalities." Journal of Industrial Economics 62(4), December 2014, 756-788.