Multilateral bargaining in networks: On the prevalence of inefficiencies

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Abstract

We introduce a new noncooperative multilateral bargaining model for network-restricted environments in which players can bargain only with their neighbors. The main theorem characterizes a condition on net- work structures for efficient equilibria. If the underlying network is either complete or circular, an efficient stationary subgame perfect equilibrium exists for all discount factors – all the players always try to reach an agreement as soon as practicable and hence no strategic delay occurs. In any other network, however, an efficient equilibrium is impossible if a discount factor is greater than a certain threshold, as some players strategically delay an agreement. We also provide an example of a Braess-like paradox, in which network improvements decrease social welfare.
Original languageEnglish
Pages (from-to)1189-1456
JournalOperations Research
Volume66
Issue number5
Early online date30 Jul 2018
DOIs
Publication statusPublished - Sep 2018

Keywords

  • noncooperative bargaining
  • coalition formation
  • cooperation restriction
  • strategic delay
  • Braess’s Paradox

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