Australian Microeconomic Theory - Leslie Marx (Duke University)
Title: Incomplete information bargaining with applications to mergers, investment, and vertical integration
Abstract: We provide an incomplete information bargaining framework that captures the effects
of differential bargaining power in markets with multiple buyers and multiple suppliers.
The market is modeled as a mechanism that maximizes the expected weighted welfare of
the agents, subject to the constraints of incentive compatibility, individual rationality,
and no deficit. We show that, in this model, there is no basis for the presumption
vertical integration increases equally weighted social surplus, while it is possible that
horizontal mergers that appropriately change bargaining weights increase social surplus.
Moreover, efficient bargaining implies that in equilibrium noncontractible investments