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A Course in Microeconomic Theory$
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David M. Kreps

Print publication date: 2020

Print ISBN-13: 9780691202754

Published to Princeton Scholarship Online: May 2021

DOI: 10.23943/princeton/9780691202754.001.0001

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Bilateral bargaining

Bilateral bargaining

(p.551) Chapter Fifteen Bilateral bargaining
A Course in Microeconomic Theory

David M. Kreps


This chapter examines how, after discussing monopoly, many principles and intermediate microeconomics books move on to the cases of monopsony (one buyer and many sellers) and bilateral monopoly (one buyer and one seller). The analysis of monopsony is straightforward after monopoly. The monopsonist, taking their supply curve as given, equates the marginal value of the factor to them with the “marginal factor cost.” Then there is a paragraph or two about bilateral monopoly. The chapter considers what noncooperative game theory has to offer to this situation. This is a case where institutions matter (according to the theory), and rather more than seems sensible, although the extreme and unintuitive sensitivity to institutional form that one sees in the theory may be attributable to the starkness of the models in terms of what players know about each other. The chapter then looks at the problem of bilateral bargaining.

Keywords:   microeconomics, monopsony, bilateral monopoly, supply curve, marginal value, noncooperative game theory, bilateral bargaining

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