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Multilateral Bargaining in Networks: On the Prevalence of Inefficiencies

Joosung J. Lee

Published 2015 in Operational Research

ABSTRACT

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 ecient equilibria: An ecient 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.

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