Scandinavian Working Papers in Economics
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Department of Economics, Uppsala University Working Paper Series, Department of Economics, Uppsala University

No 2006:29:
Delay in Bargaining with Externalities

Jonas Björnerstedt () and Andreas Westermark ()

Abstract: This paper studies infinite-horizon bargaining between a seller and multiple buyers when externalities are present. We extend the analysis in Jehiel & Moldovanu (1995a), by allowing for both pure and mixed equilibria. This extension is warranted, since under some circumstances,the complexity of the equilibria with bounded recall they analyze tend to infinity as players become very patient. We show that stationary subgame perfect equilibria always exist. Moreover, a characterization of the stationary subgame perfect equilibria in generic games is presented. Equilibria with delay exist only for strong positive externalities. Since ach buyer receives a positive payoff when the seller agrees with some other buyer, positive externalities induces a war of attrition between buyers. Furthermore, the results when analyzing mixed stationary equilibria are different than when focusing on pure strategies with bounded recall as Jehiel & Moldovanu (1995a). Specifically, they find delay only when externalities are negative.

Keywords: Bargaining; externalities; delay; (follow links to similar papers)

JEL-Codes: C72; C78; D62; (follow links to similar papers)

27 pages, November 24, 2006

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