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Search theory,competitive equilibrium,and the Nash bargaining solution
Authors:In-Koo Cho  Akihiko Matsui
Affiliation:1. Department of Economics, University of Illinois, 1407 W. Gregory Drive, Urbana, IL 61801, USA;2. Faculty of Economics, University of Tokyo, 7-3-1 Hongo, Bunkyo-ku, Tokyo 113-0033, Japan
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].
Keywords:C70   C78   D83
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