Bargaining among partners
by Simon Loertscher and Leslie Marx
Abstract: While bargaining is at the core of economics, economic theories of bargaining have produced rich, often incompatible predictions, some stipulating that bargaining be efficient and others proving that it cannot be. Using a generalized partnership model with independent private values that permits a unifying approach, we study how bargaining outcomes depend on ownership, bargaining power, and type distributions. With two agents and overlapping supports, equal bargaining power is necessary for efficiency, whereas equal ownership is not. Without overlapping supports, efficiency does not depend on ownership structure. Bargaining is efficient independent of ownership and bargaining power if and only if the gap between the supports is sufficiently large, in which case bargaining never breaks down and incomplete and complete information bargaining are equivalent. For equal (extremal) bargaining weights, variants of the $k$-double auction implement the optimal mechanism for uniform distributions (distributions satisfying regularity). Generalizations include decreasing marginal values and multiple agents.