Skip to main content
Unpublished Paper
Bilateral Bargaining with Externalities
  • Catherine C de Fontenay, Melbourne Business School
  • Joshua S Gans

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 firm-worker negotiations and buyer-seller networks.

  • bargaining,
  • Shapley value,
  • Myerson value,
  • networks,
  • games in partition function form
Publication Date
October, 2007
Citation Information
Catherine C de Fontenay and Joshua S Gans. "Bilateral Bargaining with Externalities" (2007)
Available at: