Essays on bargaining theory

Abstract

Bargaining refers to a situation where two or more agents try to decide over how to divide a surplus generated by the economic transactions among these agents. There are two major approaches to bargaining problems: cooperative and non-cooperative approach. The former one focuses on the axioms that a bargaining outcome should satisfy and it is initiated by Nash (1950). The latter one attempts to specify the bargaining procedure and it is pioneered by Stahl (1972) and Rubinstein (1982). This dissertation consists of five essays. The first three essays employ the non-cooperative bargaining approach; the remaining ones employ the cooperative bargaining approach. In the first essay, we study an infinite horizon bargaining game on a network, where the network is endogenously formed. Two specifications of the cost structure regarding the link formation is investigated: zero cost and non-zero cost. The equilibrium of the game is obtained for both specifications. Lastly, we focus on efficiency issue and characterize the efficient networks. In the second essay, an infinite horizon bargaining game between buyers and sellers on a two-sided supply chain network is analyzed where the valuations of the buyers are heterogeneous. We prove that the valuations of the buyers and the network structure have an impact on the equilibrium outcome. In the third essay, we investigate the emergence of reference points in a two-player, infinite horizon, alternating offers bargaining game. The preferences of players preferences exhibit reference-dependence, and their current offers have the potential to in uence future reference points of each other. However, this in uence is limited in that it expires in a finite number of periods. We describe a subgame perfect equilibrium that involves an immediate agreement. We study the in uence of expiration length and reference points on equilibrium strategies and outcomes. In the fourth essay, we study the salience of the reference points in determining the anchors and aspirations in a bargaining problem by introducing two parameters which capture these effects. In the cooperative bargaining literature, the disagreement point or the reference point is employed as an anchor while the ideal (or utopia) point or the tempered aspirations point as an aspiration. In this essay, a bargaining problem with a reference point is studied incorporating these two parameters and hence a family of bargaining solutions is obtained. Consequently, several characterizations for each individual member of this family is proposed. In the fifth essay, we introduce the iterated egalitarian compromise solution for two-person bargaining problems. It is defined by using two well-known solutions to bargaining problems, the egalitarian solution and the equal-loss solution, in an iterative fashion. While neither of these two solutions satisfy midpoint domination {an appealing normative property{ we show that the iterated egalitarian compromise solution does so. To sum up, this dissertation contributes to the diversified fields and practices of bargaining theory.