Articlegreen2014

Bilateral Bargaining with Externalities

95 citations0/0 files storedJournal of Industrial Economics

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Game Theory and Voting Systems Merger and Competition Analysis Game Theory and Applications

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.

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References

1965Existence and Uniqueness of Equilibrium Points for Concave N-Person Games 1996A Strategic Model of Social and Economic Networks 1986The Nash Bargaining Solution in Economic Modelling 1977Graphs and Cooperation in Games 1990Vertical Integration and Market Foreclosure 2002The Evolution of Social and Economic Networks 1988Bilateral Monopolies and Incentives for Merger 1980Conference structures and fair allocation rules

Cited by

2014Downstream mode of competition with upstream market power 2011Competition in Health Care Markets11We wish to thank participants at the Handbook of Health Economics meeting in Lisbon, Portugal, Pedro Pita Barros, Rein Halbersman, and Cory Capps for helpful comments and suggestions. Misja Mikkers, Rein Halbersma, and Ramsis Croes of the Netherlands Healthcare Authority graciously provided data on hospital and insurance market structure in the Netherlands. David Emmons kindly provided aggregates of the American Medical Association's calculations of health insurance market structure. Leemore Dafny was kind enough to share her measures of market concentration for the large employer segment of the US health insurance market. All opinions expressed here and any errors are the sole responsibility of the authors. No endorsement or approval by any other individuals or institutions is implied or should be inferred.

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