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Bilateral Bargaining with Externalities
Author(s) -
Fontenay Catherine C.,
Gans Joshua S.
Publication year - 2014
Publication title -
the journal of industrial economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.93
H-Index - 77
eISSN - 1467-6451
pISSN - 0022-1821
DOI - 10.1111/joie.12058
Subject(s) - microeconomics , externality , division (mathematics) , pairwise comparison , economics , value (mathematics) , cooperative game theory , economic surplus , division of labour , foreclosure , production (economics) , mathematical economics , game theory , welfare , computer science , mathematics , market economy , arithmetic , finance , artificial intelligence , machine learning
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 related to the M yerson‐ S hapley value with properties that are particularly useful and tractable in applications. We demonstrate this by examining buyer‐seller networks and vertical foreclosure.