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Full-Text Articles in Industrial Organization
Bilateral Bargaining With Externalities, Catherine De Fontenay, Joshua Gans
Bilateral Bargaining With Externalities, Catherine De Fontenay, Joshua Gans
Catherine de Fontenay
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.