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Local Bargaining and Endogenous Fluctuations ∗ Thành Nguyen †

By Vijay Subramanian


We study how local bargaining in a networked market can cause endogenous fluctuations by a new approach that incorporates non-cooperative bargaining into a large networked economy. In particular, we consider a networked bargaining game that captures trade with intermediaries and define its replications. We examine the agents’behaviorinthelimitasthepopulationsizegoestoinfinity: alimitstationary equilibrium exists if there is a converging sequence of semi-stationary equilibria in the finite replications. The existence of a limit stationary equilibrium captures the hypothesis that when the market gets large, the agents will behave myopically and the market will be stable. However, we prove that limit stationary equilibria need not exist even when market fundamentals are deterministic, agents are patient and share a common belief. This shows that in our setting the underlying network is the main friction that hinders stationary markets

Topics: Non-cooperative bargaining, Price formation, Network games. I thank Rakesh Vohra for many discussions and tremendous help. I also would like to t
Year: 2012
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