A Theory of Negotiations and Formation of Coalitions

Rodney L. White Center for Financial Research Working Paper No. 21-99

57 Pages Posted: 1 Dec 1999

See all articles by Armando R. Gomes

Armando R. Gomes

Washington University in St. Louis - John M. Olin Business School; Washington University in Saint Louis - John M. Olin Business School

Date Written: September 20, 1999

Abstract

This paper proposes a new solution concept to three-player coalitional bargaining problems where the underlying economic opportunities are described by a partition function. This classic bargaining problem is modeled as a dynamic non-cooperative game in which players make conditional or unconditional offers, and coalitions continue to negotiate as long as there are gains from trade. The theory yields a unique stationary perfect equilibrium outcome-the negotiation value-and provide a unified framework that selects an economically intuitive solution and endogenous coalition structure. For such games as pure bargaining games the negotiation value coincides with the Nash bargaining solution, and for such games as zero-sum and majority voting games the negotiation value coincides with the Shapley value. However, a novel situation arises where the outcome is determined by airwise sequential bargaining sessions in which a pair of players forms a natural match. In addition, another novel situation exists where the outcome is determined by one pivotal player bargaining unconditionally with the other players, and only the pairwise coalitions between the pivotal player and the other players can form.

JEL Classification: C78

Suggested Citation

Gomes, Armando R. and Gomes, Armando R., A Theory of Negotiations and Formation of Coalitions (September 20, 1999). Rodney L. White Center for Financial Research Working Paper No. 21-99, Available at SSRN: https://ssrn.com/abstract=184768 or http://dx.doi.org/10.2139/ssrn.184768

Armando R. Gomes (Contact Author)

Washington University in Saint Louis - John M. Olin Business School ( email )

One Brookings Drive
Campus Box 1133
St. Louis, MO 63130-4899
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314-935-4569 (Phone)

Washington University in St. Louis - John M. Olin Business School ( email )

One Brookings Drive
Campus Box 1133
St. Louis, MO 63130-4899
United States
314-935-4569 (Phone)

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