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Bargaining Power and Value Sharing in Distribution Networks: A Cooperative Game Theory Approach

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  • Roberto Roson
  • Franz Hubert

Abstract

This paper introduces a novel methodology for analyzing bargaining games on network markets, which are markets where transactions occur by means of distribution networks (e.g., gas, electric energy, water, etc.). The overall economic surplus obtained in the market is distributed among all network agents the on the basis of their bargaining power, which in turn depends on a variety of factors: position of each agent (e.g., a country) in the network, reliability in the cooperation scheme (e.g., geo-political stability), existence of market distortions and availability of outside options (e.g., alternative energy sources). The method we propose, which is illustrated here through an application to a fictitious network structure, is based on a two-stage process: first, a network optimization model is used to generate payoff values under different coalitions and network structures; second, cooperative game solutions are identified. Any change in the network structure entails both a variation in the overall welfare level and in the distribution of surplus among agents, as it affects their relative bargaining power. Therefore, expected costs and benefits, at the aggregate as well as at the individual level, can be compared to assess the economic viability of any investment in network infrastructure. A number of model variants and extensions are also considered: changing demand, exogenous instability factors, market distortions, externalities and outside options. Copyright Springer Science+Business Media New York 2015

Suggested Citation

  • Roberto Roson & Franz Hubert, 2015. "Bargaining Power and Value Sharing in Distribution Networks: A Cooperative Game Theory Approach," Networks and Spatial Economics, Springer, vol. 15(1), pages 71-87, March.
  • Handle: RePEc:kap:netspa:v:15:y:2015:i:1:p:71-87
    DOI: 10.1007/s11067-014-9270-6
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    References listed on IDEAS

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    1. Franz Hubert & Svetlana Ikonnikova, 2011. "Investment Options And Bargaining Power: The Eurasian Supply Chain For Natural Gas," Journal of Industrial Economics, Wiley Blackwell, vol. 59(1), pages 85-116, March.
    2. Hubert, Franz & Orlova, Ekaterina, 2018. "Network access and market power," Energy Economics, Elsevier, vol. 76(C), pages 170-185.
    3. Hubert Franz & Cobanli Onur, 2015. "Pipeline Power: A Case Study of Strategic Network Investments," Review of Network Economics, De Gruyter, vol. 14(2), pages 75-110, June.
    4. Jackson, Matthew O., 2005. "Allocation rules for network games," Games and Economic Behavior, Elsevier, vol. 51(1), pages 128-154, April.
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    7. Stefano Moretti & Fioravante Patrone, 2008. "Transversality of the Shapley value," TOP: An Official Journal of the Spanish Society of Statistics and Operations Research, Springer;Sociedad de Estadística e Investigación Operativa, vol. 16(1), pages 1-41, July.
    8. M. Maschler & B. Peleg & L. S. Shapley, 1979. "Geometric Properties of the Kernel, Nucleolus, and Related Solution Concepts," Mathematics of Operations Research, INFORMS, vol. 4(4), pages 303-338, November.
    9. repec:wsr:wpaper:y:2012:i:093 is not listed on IDEAS
    10. Ekaterina Orlova & Franz Hubert, 2012. "Competition or Countervailing Power for the European Gas Market," EcoMod2012 4490, EcoMod.
    11. Shapley, L. S. & Shubik, Martin, 1954. "A Method for Evaluating the Distribution of Power in a Committee System," American Political Science Review, Cambridge University Press, vol. 48(3), pages 787-792, September.
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    Citations

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    Cited by:

    1. Jan Cervenka, 2019. "Bargaining Power: Significance, Structure and Development," ACTA VSFS, University of Finance and Administration, vol. 13(1), pages 79-93.
    2. Jóna, György & Tóth, Tamás, 2017. "Spatial Effects And Externalities Of The Rivals’ Networks In Hungary," Journal of Tourism, Sustainability and Well-being, Cinturs - Research Centre for Tourism, Sustainability and Well-being, University of Algarve, vol. 5(3), pages 189-207.
    3. Csercsik, Dávid & Hubert, Franz & Sziklai, Balázs R. & Kóczy, László Á., 2019. "Modeling transfer profits as externalities in a cooperative game-theoretic model of natural gas networks," Energy Economics, Elsevier, vol. 80(C), pages 355-365.
    4. Natalya Gennadievna Dzhurka, 2021. "Research on Spatial Economic Interactions: A Cooperative Game Theory Approach," Spatial Economics=Prostranstvennaya Ekonomika, Economic Research Institute, Far Eastern Branch, Russian Academy of Sciences (Khabarovsk, Russia), issue 1, pages 144-162.
    5. Alexander Zerrahn & Daniel Huppmann, 2017. "Network Expansion to Mitigate Market Power," Networks and Spatial Economics, Springer, vol. 17(2), pages 611-644, June.
    6. Sziklai, Balázs R. & Kóczy, László Á. & Csercsik, Dávid, 2020. "The impact of Nord Stream 2 on the European gas market bargaining positions," Energy Policy, Elsevier, vol. 144(C).
    7. Mazur Karolina & Milewski Radosław, 2018. "Modeling of value flows in logistics networks. Comparison of basic tools," Management, Sciendo, vol. 22(2), pages 158-170, December.
    8. Lotte Verdonck & Katrien Ramaekers & Benoît Depaire & An Caris & Gerrit K. Janssens, 2019. "Analysing the Effect of Partner Characteristics on the Performance of Horizontal Carrier Collaborations," Networks and Spatial Economics, Springer, vol. 19(2), pages 583-609, June.
    9. Xiaohu Qian & Mingqiang Yin & Felix T. S. Chan & Kai Yue, 2023. "Winner Determination with Sustainable-Flexible Considerations Under Demand Uncertainty in Transportation Service Procurement Auctions," Networks and Spatial Economics, Springer, vol. 23(4), pages 953-984, December.
    10. Balazs Sziklai & Laszlo A. Koczy & David Csercsik, 2018. "The geopolitical impact of Nord Stream 2," CERS-IE WORKING PAPERS 1821, Institute of Economics, Centre for Economic and Regional Studies.
    11. D'avid Csercsik & Anne Neumann, 2022. "Solidarity in natural gas storage: A potential allocation mechanism of stored quantities among several players during times of crisis," Papers 2209.05089, arXiv.org, revised Aug 2023.

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    More about this item

    Keywords

    Network markets; Cooperative games; Distribution networks; Bargaining;
    All these keywords.

    JEL classification:

    • C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques
    • C71 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Cooperative Games
    • L95 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Gas Utilities; Pipelines; Water Utilities

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