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Long-Term Relationship Bargaining

Author

Listed:
  • Westermark, Andreas

    (Research Department, Central Bank of Sweden)

Abstract

We analyze a bargaining model where there is a long-term relationship between a seller and a buyer and there is bargaining over a sequence of surpluses that arrives at fixed points in time. Markov Perfect Equilibria are analyzed and equilibrium payoffs characterized. The transfers between the players can be described as a first-order system of difference equations. Payoffs depend on both current and future surpluses. Future surpluses are important partly because the risk of separation leads to the loss of surplus today and in the future and partly because delay without separation can last into future periods. We also find conditions for existence and uniqueness of equilibria with immediate agreement.

Suggested Citation

  • Westermark, Andreas, 2013. "Long-Term Relationship Bargaining," Working Paper Series 266, Sveriges Riksbank (Central Bank of Sweden).
    • Handle: RePEc:hhs:rbnkwp:0266
    as

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    File URL: http://www.riksbank.se/Documents/Rapporter/Working_papers/2013/rap_wp266_130613.pdf
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    References listed on IDEAS

    as
    1. Rubinstein, Ariel, 1982. "Perfect Equilibrium in a Bargaining Model," Econometrica, Econometric Society, vol. 50(1), pages 97-109, January.
    2. Muthoo Abhinay, 1995. "Bargaining in a Long-Term Relationship with Endogenous Termination," Journal of Economic Theory, Elsevier, vol. 66(2), pages 590-598, August.
    3. Christiano, Lawrence J. & Trabandt, Mathias & Walentin, Karl, 2011. "Introducing financial frictions and unemployment into a small open economy model," Journal of Economic Dynamics and Control, Elsevier, vol. 35(12), pages 1999-2041.
    4. Maskin, Eric & Tirole, Jean, 2001. "Markov Perfect Equilibrium: I. Observable Actions," Journal of Economic Theory, Elsevier, vol. 100(2), pages 191-219, October.
    5. Leach, John, 1997. "Inventories and Wage Bargaining," Journal of Economic Theory, Elsevier, vol. 75(2), pages 433-463, August.
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    More about this item

    Keywords

    Bargaining; long term relationship;

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory

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