Bargaining and markets: complexity and the competitive outcome |
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Authors: | Hamid Sabourian |
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Institution: | Faculty of Economics and Politics, University of Cambridge, Sidgwick Site, Sidgwick Avenue, Cambridge CB3 9DD, UK |
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Abstract: | Rubinstein and Wolinsky (Rev. Econ. Stud. 57 (1990) 63-78) consider a simple decentralised market game in which agents meet randomly or voluntarily and bargain over the terms of trade. They show that any individually rational price can be sustained as a sequential equilibrium even though the model has a unique competitive outcome. Here, I consider Rubinstein and Wolinsky's model and show that if complexity costs of implementing strategies enter players’ preferences, together with the standard payoff in the game, then every equilibrium is stationary/Markov and induces the unique competitive price. Thus, I demonstrate that aversion to complexity may provide a justification for the competitive outcome. |
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Keywords: | C72 C78 D5 |
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