Strategic Formation of Homogeneous Bargaining Networks

41 Pages Posted: 21 Dec 2014 Last revised: 9 Oct 2016

See all articles by Florian Gauer

Florian Gauer

Bielefeld University - Center for Mathematical Economics

Date Written: August 2016

Abstract

We analyze a model of strategic network formation prior to a Manea (2011) bargaining game: ex-ante homogeneous players form costly undirected links, anticipating expected equilibrium payoffs from the subsequent network bargaining. Assuming patient players, we provide a complete characterization of generically pairwise stable networks: specific unions of separated pairs, odd circles, and isolated players constitute this class. We also show that many other structures, such as larger trees or unbalanced bipartite networks, cannot be pairwise stable at all. As an important implication, this reveals that the diversity of possible bargaining outcomes is substantially narrowed down, provided that the underlying network is (generically) pairwise stable.

Keywords: Bargaining, Network Formation, Noncooperative Games

JEL Classification: C72, C78, D85

Suggested Citation

Gauer, Florian, Strategic Formation of Homogeneous Bargaining Networks (August 2016). Center for Mathematical Economics Working Paper No. 529, Available at SSRN: https://ssrn.com/abstract=2540720 or http://dx.doi.org/10.2139/ssrn.2540720

Florian Gauer (Contact Author)

Bielefeld University - Center for Mathematical Economics ( email )

Postfach 10 01 31
Bielefeld, D-33501
Germany
+49 (0) 521 106 4918 (Phone)

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