Multilateral Bargaining in Networks

We introduce a noncooperative multilateral bargaining model for a network-restricted environment, in which players can communicate only with their neighbors. Each player can strategically choose the bargaining partners among the neighbors and buy their communication links with upfront transfers.
We characterize a condition on network structures for efficient equilibria: An efficient stationary subgame perfect equilibrium exists for all discount factors if and only if the underlying network is either complete or circular. We also provide an example of a Braess-like paradox, in which the more links are available, the less links are actually used. Thus, network improvements may decrease social welfare.