A Dynamic Bargaining Game with Externalities
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Negotiation and bargaining are the common means of solving economic and political problems. In these problems, players often form coalitions for activities. In the environment with externalities, the worth of a coalition depends not only on itself, but also on the coalition structure of other players. This paper studies dynamic bargaining games with externalities and analyzes the effect of externality on the payoffs of players. Based on the Rubinstein’s two-person alternating-offer bargaining game, the authors study a two-person dynamic game with externalities and extend it to the case of n players. The research shows that externality affects the results of this bargaining game, and coalition structures affect the payoffs of players. Players in this bargaining game can always form grand coalition if an allocation is effective, but some coalition structures may not be formed under some certain conditions.
KeywordsDynamic bargaining externalities game theory
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