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Bilateral Bargaining with Externalities

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  • Catherine C. Fontenay
  • Joshua S. Gans

Abstract

type="main"> 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 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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  • Catherine C. Fontenay & Joshua S. Gans, 2014. "Bilateral Bargaining with Externalities," Journal of Industrial Economics, Wiley Blackwell, vol. 62(4), pages 756-788, December.
    • Handle: RePEc:bla:jindec:v:62:y:2014:i:4:p:756-788
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    Cited by:

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    2. Rey, Patrick & Vergé, Thibaud, 2016. "Secret contracting in multilateral relations," TSE Working Papers 16-744, Toulouse School of Economics (TSE), revised Dec 2020.
    3. repec:hal:wpaper:hal-03375907 is not listed on IDEAS
    4. Chrysovalantou Milliou & Apostolis Pavlou, 2020. "Foreign direct investment in vertically related markets," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 53(1), pages 284-320, February.
    5. Jeon, Doh-Shin & Lefouili, Yassine, 2020. "Decentralizing Cooperation through Upstream Bilateral Agreements," CEPR Discussion Papers 14974, C.E.P.R. Discussion Papers.
    6. Björn Brügemann & Pieter Gautier & Guido Menzio, 2019. "Intra Firm Bargaining and Shapley Values," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 86(2), pages 564-592.
    7. Eguia, Jon X. & Llorente-Saguer, Aniol & Morton, Rebecca & Nicolò, Antonio, 2018. "Equilibrium selection in sequential games with imperfect information," Games and Economic Behavior, Elsevier, vol. 109(C), pages 465-483.
    8. Chambolle, Claire & Christin, Clémence & Molina, Hugo, 2023. "Buyer power and exclusion: A progress report," International Journal of Industrial Organization, Elsevier, vol. 90(C).
    9. Adachi, Takanori & Tremblay, Mark J., 2020. "Business-to-business bargaining in two-sided markets," European Economic Review, Elsevier, vol. 130(C).
    10. William P. Rogerson, 2020. "Modelling and predicting the competitive effects of vertical mergers: The bargaining leverage over rivals effect," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 53(2), pages 407-436, May.
    11. Wang, Jingqi & Shin, Hyoduk & Zhou, Qin, 2021. "The optimal investment decision for an innovative supplier in a supply chain," European Journal of Operational Research, Elsevier, vol. 292(3), pages 967-979.
    12. Hendrik Döpper & Geza Sapi & Christian Wey, 2024. "A bargaining perspective on vertical integration," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 57(1), pages 199-224, February.
    13. Chiu Yu Ko & Duozhe Li, 2020. "Decentralized One‐To‐Many Bargaining," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 61(3), pages 1139-1172, August.
    14. Luke M. Froeb & Russell W. Pittman & Charles S. Taragin & Steven Tschantz & Gregory J. Werden, 2018. "Economics at the Antitrust Division: 2017–2018," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 53(4), pages 637-651, December.
    15. Alison Watts, 2016. "Auctions Versus Private Negotiations in Buyer-Seller Networks," Games, MDPI, vol. 7(3), pages 1-14, August.
    16. Rodolphe Durand & Robert M. Grant & Tammy L. Madsen & Joshua Gans & Michael D. Ryall, 2017. "Value capture theory: A strategic management review," Strategic Management Journal, Wiley Blackwell, vol. 38(1), pages 17-41, January.
    17. Xiaowei Yu & Keith Waehrer, 2024. "Recursive Nash-in-Nash bargaining solution," Economics Bulletin, AccessEcon, vol. 44(1), pages 11-24.

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