Search theory, competitive equilibrium, and the Nash bargaining solution

In Koo Cho, Akihiko Matsui

Research output: Contribution to journalArticle

Abstract

We investigate a canonical search-theoretic model without entry. Two agents are randomly matched with a long side being rationed. The matched agents face a pair of randomly drawn non-transferable payoffs, and then choose whether or not to form a partnership subject to a small probability of exogenous break down. As this probability and friction vanish, the Nash bargaining solution emerges as the unique undominated strategy equilibrium outcome if the mass of each party is the same. If the size of one party is larger than the other, the short side extracts the entire surplus, a sharp contrast to Rubinstein and Wolinsky (1985) [16].

Original languageEnglish (US)
Pages (from-to)1659-1688
Number of pages30
JournalJournal of Economic Theory
Volume148
Issue number4
DOIs
StatePublished - Jul 1 2013

Keywords

  • Matching
  • Nash bargaining solution
  • Search
  • Undominated strategy equilibrium

ASJC Scopus subject areas

  • Economics and Econometrics

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