Multilateral bargaining in networks: On the prevalence of inefficiencies

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.